
dss 

Book — 



COPYRtGHF DEPOSIT 



CAPITAL 

A CRITIQUE OF POLITICAL ECONOMY 



By KARL MARX 



VOLUME III 

THE PROCESS OF CAPITALIST PRODUCTION AS A WHOLE 



EDITED BY 

FREDERICK ENGELS 



Translated from the First German Edition by Ernest Untermann 



CHICAGO 

CHARLES H. KERR & COMPANY 
1909 



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Copyright, 1909 
BY CHARLES H. KERR & COMPANY 



LIBRARY of CONGRESSi 
Tv/0 Couips Ruceived 

JUN 21 1B09 

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CONTENTS 



PmfACK " 

PART I. 

THE CONVERSION OF SURPLUS-VALUE INTO PROFIT AND OF THE RATE SF SURPLUS-VALUE 
INTO THE RATE OF PROFIT. 

Chapter I. — Cost Price and Profit 37 

Chapter IL— The Rate of Profit 53 

Chapter III.— The Relation of the Rate of Profit to the Rate of Surplus- Value 63 

Chapter IV. — The Effect of the Turn-over on the Rate of Profit .... 85 

Chapter V. — Economies in the Employment of Constant Capital .... 93 

I. — ■ General Economies ^"^ 

II.— Economies in the Conditions of labor at the expense of the Laborers 105 

Coal Mines. Neglect of the most Indispensable Expenditures . . . 105 
III. — Economies in the Generation of Power, Transmission of Power and 

Buildings 1^^ 

IV. — Utilisation of the Excrements of Production 120 

V. — Economies Due to Inventions 123 

Chapter VI. — The Effect of Fluctuations in Price 125 

I. — Fluctuations in the Price of Raw Materials, and their Direct Effects 

on the Rate of Profit 125 

II. — Appreciation, Depreciation, Release, and Tie-up of Capital .... 131 
III.— General Illustration. The Cotton Crisis of 1861-1865. Preliminary 

History, 1845-1860 ^47 

Chapter VII. — Additional Remarks . 163 

PART II. 

conversion of profit into average profit. 

Chapter VIII. — Different Composition of Capitals in Different Lines of Pro- 
duction and Resulting Differences in the Rates of Profit 168 
Chapter IX.— Formation of a General Rate of Profit (Average Rate of Profit) 
and Transformation of the Values of Commodities into Prices 

of Production ■ 182 

Chapter X. — Compensation of the Average Rate of Profit by Competition. 

Market Prices and Market Values. Surplus-Profit .... 203 
Chapter XL— Effects of General Fluctuations of Wages on Prices of Pro- 
duction - ^^'^ 

Chapter XII. — Some After Remarks 239 

I._ Causes Implying a Variation of the Price of Production . . . . . 239 

II. Price of Production of Commodities of Average Composition ... 241 

III. Fluctuations for v/hich the Capitalist makes Allowance .... 243 

5 



5 Contents. 

PART III. 

THE LAW OF THE FALLING TENDENCY 0? THE RATE OF PROFIT. 

FAGB 

Chapter XIII.— The Theory of the Law 247 

Chapter XIV.— Counteracting Causes 372 

I. — Raising the Intensity of Exploitation 272 

II. — Depression of Wages Below their Value 276 

III.— Cheapening of the Elements of Constant Capital 276 

IV. — Relative Overpopulation 277 

v.— Foreign Trade ^'^^ 

VI. — The Increase of Stock Capital 281 

Chapter XV. — Unraveling the Internal Contradictions of the Law ... 282 

I.— General Remarks . 282 

II — Conflict between the Expansion of Production and the Creation of 

Values 289 

III._ Surplus of Capital and Surplus of Population 394 

IV.— Supplementary Remarks ^^^ 



PART IV. 

transformation of commodity-capital and money-capital into commercial capi- 
tal AND financial capital (merchant's capital). 

Chapter XVI. — Commercial Capital *1* 

Chapter XVII.— Commercial Profit 330 

Chapter XVIII.— The Turn-over of Merchant's Capital. The Prices . . 856 

Chapter XIX.— Financial Capital ''''1 

Chapter XX.— Historical Data Concerning Merchant's Capital «80 



PART V. 

DIVISION OF PROFIT INTO INTEREST AND PROFITS OF ENTERPRISE. 
the INTEREST-BEARING CAPITAL. 

Chapter XXL— The Interest-Bearing Capital *9'l 

Chapter XXIL— Division of Profit. Rate of Interest. Natural Rate of In- 
terest *^1 

Chapter XXIIL— Interest and Profit of Enterprise 434 

Chapter XXIV.— Externalisation of the Relations of Capital in the Form of 

Interest-Bearing Capital 459 

Chapter XXV.— Credit and Fictitious Capital 469 

Chapter XXVL— Accumulation of Money-Capital. Its Influence on the Rate 

of Interest 489 

Chapter XXV IL— The Role of Credit in Capitalist Production .... 515 
Chapter XXVIII.— The Medium of Circulation (Currency) and Capital. 

Tooke's and Fullarton's Conception 523 

I. Confounding the Definite Distinctions 524 

II.— Introducing the Question of the Quantity of Money Circulating To- 
gether in Both Functions 687 



Contents. 7 

PAGE 
III. — Introduction of the Question of the Relative Proportions of the Quan- 
tities of Currency Circulating in Both Functions and Thus in Both 

Spheres of the Process of Reproduction 527 

Chapter XXIX. — The Composition of Banking Capital . . . . . . . 545 

Chapter XXX. — Money-Capital and Actual Capital, 1 559 

Chapter XXXI. — Money-Capital and Actual Capital, II 580 

I. — Conversion of Money into Loan Capital 581 

II. — Conversion of Capital or Revenue into Money that is Transformed into 

Loan Capital 589 

Chapter XXXIL— Money-Capital and Actual Capital, III 593 

Chapter XXXIII. — The Currency under the Credit System 611 

Chapter XXXIV. — The Currency Principle and the English Bank Laws of 

1844 643 

Chapter XXXV. — Precious Metals and Rates of Exchange 663 

I. — The Movements of the Gold Reserve 663 

;i II.— The Rate of Exchange 674 

III. — Rate of Exchange with Asia 676 

IV.— England's Balance of Trade 693 

Chapter XXXVI.— Precapitalist Conditions 696 

Interest in the Middle Ages 716 

PART VI. 

transformation of surplus profit into ground-rent. 

Chapter XXXVIL— Preliminaries 720 

Chapter XXXVIII.— Differential Rent. General Remarks 749 

Chapter XXXIX.— The First Form of Differential Rent 760 

Chapter XL. — The Second Form of Differential Rent 787 

Chapter XLI. — Differential Rent II. — First Case : Constant Price of Pro- 
duction 801 

Chapter XLII. — Differential Rent II. — Second Case: Falling Price of Pro- 
duction 810 

I. — The Productivity of the Additional Investment of Capital Remains 

the same 810 

II. — The Rate of Productivity of the Additional Capitals Decreases . . 819 

III. — The Rate of Productivity of the Additional Capitals Increases . . 821 
Chapter XLIIL— Differential Rent No. II.— Third Case: Rising Price of 

Production 828 

Chapter XLIV. — Differential Rent Even Upon the Worst Soil under Culti- 
vation 856 

Chapter XLV.— Absolute Ground-Rent 867 

Chapter XLVL— Building Lot Rent. Mining Rent. Price of Land ... 897 

Chapter XLVII. — Genesis of Capitalist Ground-Rent 908 

I. — Introductory Remarks .908 

II.— Labor Rent . 917 

III.— Rent in Kind ■ 923 

IV.— Money Rent 925 

V. — Share Farming (Metairie System) and Small Peasants' Property . . 933 



8 Contents. 



PART VII. 

THE REVENUES AND THEIR SOURCES. 

PAGE 

Chapter XL VIII.— The Trinitarian Formula 947 

Chapter XLIX. — A Contribution to the Analysis of the Process of Pro- 
duction 968 

Chapter L. — The Semblance of Competition 992 

Chapter LI. — Conditions of Distribution and Production 1022 

Chapter LII.— The Classes 1031 



PEEFACE. 

At last I have the pleasure of making public this third 
volume of the main work of Marx, the closing part of his 
economic theories. When I published the second volume, 
in 1S85, I thought that the third would probably offer only 
technical difficulties, with the exception of a few very im- 
portant sections. This turned out to be so. But that these 
exceptional sections, which represent the most valuable parts 
of the entire work, would give me as much trouble as they 
did, I could not foresee at that time any more than I an- 
ticipated the other obstacles, which retarded the completion 
of the work to such an extent. 

In the first place it was a weakness of my eyes which re- 
stricted my time of writing to a minimum for years, and 
which permits me even now only exceptionally to do any 
writing by artificial light. There were furthermore other 
labors which I could not refuse, such as new editions and 
translations of earlier works of Marx and myself, revisions, 
prefaces, supplements, which frequently required special 
study, etc. There was above all the English edition of the 
first volume of this work, for whose text I am ultimately re- 
sponsible and which absorbed much of my time. Whoever 
has followed the colossal growth of international socialist lit- 
erature during the last ten years, especially the great number 
of translations of earlier works- of Marx and myself, will 
agree with me in congratulating myself that there is but 
a limited number of languages in which I am able to assist 
a translator and which compel me to accede to the request for 

9 



lo Preface. 

a revision. This growth of literature, however, was but an 
evidence of a corresponding growth of the international work- 
ing class movement itself. And this imposed new obligations 
on me. From the very first days of our public activity, a 
good deal of the work of negotiation between the national 
movements of socialists and working people in the various 
countries had fallen on the shoulders of Marx and myself. 
This work increased to the extent that the movement as a 
whole gained in strength. Up to the time of his death, Marx 
had borne the brunt of this burden. But after that the ever 
swelling amount of work had to be done by myself alone. 
Meanwhile the direct intercourse between the various national 
labor parties has become the rule, and fortunately it is be- 
coming more and more so. E"evertheless my assistance is 
still in demand a good deal more than is agreeable to me in 
view of my theoretical studies. But if a man has been active 
in the movement for more than fifty years, as I have, he re- 
gards the work connected with it as a duty, which must not 
be shirked, but immediately fulfilled. In our stirring times, 
as in the 16th century, mere theorizers on public affairs are 
found only on the side of the reactionaries, and for this 
reason these gentlemen are not even theoretical scientists, but 
simply apologists of reaction. 

The fact that I live in London implies that my intercourse 
with the party is limited in winter to correspondence, while 
in summer time it largely takes place by personal interviews. 
This fact, and the necessity of following the course of the 
movement in a steadily growing number of countries and a 
still more rapidly increasing number of party organs, com- 
pelled me to reserve matters which brooked no interruption 
for the winter months, preferably the first three months of 
the year. When a man is past seventy, his brain's fibers of 
association work with a certain disagreeable slowness. He 



Prefece. 1 1 

does not overcome interruptions of difficult theoretical prob- 
lems as easily and quickly as formerly. Thus it came about 
that the work of one winter, if it was not completed, had to be 
largely done over the following winter. And this took place 
particularly in the case of the most difficult section, the fifth. 

The reader will observe by the following statements that 
the work of editing the third was ess-entially different from 
that of the second volume. JSTothing was available for the 
third volume but a first draft, and it was very incomplete. 
The beginnings of the various sections were, as a rule, pretty 
carefully elaborated, or even polished as to style. But the 
farther one proceeded, the more sketchy and incomplete was 
the analysis, the more excursions it contained into side issues 
whose proper place in the argument was left for later decision, 
the longer and more complex became the sentences, in which 
the rising thoughts were deposited as they came. In several 
places, the handwriting and the treatment of the matter 
clearly revealed the approach and gradual progress of those 
attacks of ill health, due to overwork, which at first rendered 
original work more and more difficult for the author and 
finally compelled him from time to time to stop work alto- 
gether. And no wonder. Between 1863 and 1867, Marx 
had not only completed the first draft of the two last vol- 
umes of Capital and made the first volume ready for the 
printer, but had also mastered the enormous work connected 
with the foundation and expansion of the International 
Workingmen's Association. The result was the appearance of 
the first symptoms of that ill health which is to blame for 
the fact that Marx did not himself put the finishing touches 
to the second and third volumes. 

I began my work on these volumes by first dictating the 
entire manuscript of the original, which was often hard to 
decipher even for me, into readable copy. This required con- 



12 Preface. 

siderable time to begin with. It was only then that the real 
work of editing could proceed. I have limited this to the 
necessary minimum. Wherever it was sufficiently clear, I 
preserved the character of the first draft as much as possible. 
I did not even eliminate repetitions of the same thoughts, 
when they viewed the subject from another standpoint, as 
was Marx's custom, or at least expressed the same thought 
in different words. In cases where my alterations or addi- 
tions are not confined to editing, or where I used the material 
gathered by Marx for independent conclusions of my own, 
which, of course, are made as closely as possible in the spirit 
of Marx, I have enclosed the entire passage in brackets and 
affixed my initials. My footnotes may not be inclosed in 
brackets here and there, but wherever my initials are found, 

I am responsible for the entire note. 

It is natural for a first draft, that there should be many 
passages in the manuscript which indicate points to be elab- 
orated later on, without being followed out in all cases. I 
have left them, nevertheless, as they are, because they reveal 
the intentions of the author relative to future elaboration. 

]^ow as to details. 

For the first part, the main manuscript was serviceable 
only with considerable restrictions. The entire mathematical 
calculation of the relation bet^veen the rate of surplus-value 
and the rate of profit (making up the contents of our chap- 
ter III) is introduced in the very beginning, while the sub- 
ject treated in our chapter I is considered later and in- 
cidentally. Two attempts of Marx at rewriting were useful 
in this case, each of them comprizing eight pages in folio. 
But even these were not consecutively worked out. They 
furnished the substance of what is now chapter I. Chapter 

II is taken from the main manuscript. There were quite a 
number of incomplete mathematical elaborations of chapter 



Preface. 1 3 

III, and in addition thereto an entire and almost complete 
manuscript, written in the seventies and dealing with the re- 
lation of the rate of surplus-value to the rate of profit, in the 
form of equations. My friend Samuel Moore, who had done 
the greater portion of the translation of the first volume, 
undertook to edit this manuscript for me, a work for which 
he was certainly better fitted than I, since he graduated from 
Cambridge in mathematics. By the help of his summary, and 
with an occasional use of the main manuscript, I completed 
chapter III. l^othing was available for chapter IV but the 
title. But as the point of issue, the effect of the turn-over on 
the rate of profit, is of vital importance, I have elaborated 
it myself. For this reason the whole chapter has been placed 
between brackets. It was found in the course of this work, 
that the formula of chapter III for the rate of profit required 
some modification, in order to be generally applicable. Be- 
ginning with chapter V, the main manuscript is the sole basis 
for the remainder of Part I, although many transpositions and 
supplements were needed for it. 

For the following three parts I could follow the original 
manuscript throughout, aside from editing the style. A few 
passages, referring mostly to the influence of the turn-over, 
had to be brought into agreement with my elaboration of 
chapter IV; these passages are likewise placed in brackets 
and marked with my initials. 

The main difficulty was presented by Part V, which treated 
of the most complicated subject in the entire volume. And 
it was just at this point that Marx had been overtaken by one 
of those above-mentioned serious attacks of illness. Here, 
then, we had no finished draft, nor even an outline which 
might have been perfected, but only a first attempt at an 
elaboration, which more than once ended in a disarranged 
mass of notes, comments and extracts. I tried at first to com- 



14 Preface. 

plete this part, as I had the first one, by filling out vacant 
spaces and fully elaborating passages that were only indi- 
cated, so that it would contain at least approximately every- 
thing which the author had intended. I tried this at least 
three times, but failed every time, and the time lost thereby 
explains most of the retardation. At last I recognized that 
I should not accomplish my object in this way. I should 
have had to go through the entire voluminous literature of 
this field, and the final result would have been something 
which would not have been Marx's book. I had no other 
choice than to cut the matter short, to confine myself to as 
orderly an arrangement as possible, and to add only the most 
indispensable supplements. And so I succeeded in completing 
the principal labors for this part in the spring of 1893. 

As for the single chapters, chapters XXI to XXIV were, 
in the main, elaborated by Marx. Chapters XXV and 
XXVI required a sifting of the references and an interpola- 
tion of material found in other places. Chapters XXVII and 
XXIX could be taken almost completely from the original 
manuscript, but chapter XXVIII had to be arranged differ- 
ently in several places. The real difficulty began with chap- 
ter XXX. From now on the task before me was not only 
the arrangement of the references, but also a connecting of 
the line of reasoning, which was interrupted every moment 
by intervening clauses, deviations from the main point, etc., 
and taken up incidentally in quite another place. Thus chap- 
ter XXX came into existence by means of transpositions and 
eliminations utilized in other places. Chapter XXXI, again, 
was worked out more connectedly. But then followed a long 
section in the manuscript, entitled " The Confusion," consist- 
ing of nothing but extracts from the reports of Parliament on 
the crises of 1848 and 1857, in which the statements of 
twenty-three business men, and writers on economics, espe- 



Preface. 15 

cially relative to money and capital, gold exports, over-specu- 
lation, etc., are collected and accompanied here and there with 
short and playful comments. In this collection, all the cur- 
rent views of that time concerning the relation of money to 
capital are practically represented, either by aliswers or ques- 
tions, and Marx intended to analyze critically and satirically 
the confusion revealed by the ideas as to what was money, 
and what capital, on the money-market. I convinced myself 
after many experiments that this chapter could not be com- 
posed. I have used its material, particularly that criticized 
by Marx, wherever I found a connection for it. 

iN'ext follows in tolerable order the material which I have 
placed in chapter XXXII. But this is immediately followed 
by a new batch of extracts from reports of Parliament on 
every conceivable subject germane to this part, intermingled 
with comments of the author. Toward the end these com- 
ments are mainly directed toward the movement of money 
metals and the quotations of bills of exchange, and they close 
with miscellaneous remarks. On the other hand, chapter 
XXXV, entitled " Precapitalist Conditions," was fully elab- 
orated. 

Of all this material, beginning with the " Confusion," and 
using as much of it as had not been previously placed other- 
wise, I made up chapters XXXIII to XXXV. Of course 
this could not be done without considerable interpolations on 
my part in order to complete the connections. Unless these 
interpolations are of a merely formal nature, they are ex- 
pressly marked as belonging to me. In this way I have suc- 
ceeded in placing all the relevant statements of the author 
in the text of this work. N'othing has been left out but a 
small portion of the extracts, which either repeated statements 
already made previously, or touched on points which the 
original manuscript did not treat in detail. 



1 6 Preface. 

■ The part dealing witli ground-rent was mucli more fully 
elaborated, although not properly arranged. This is apparent 
from the fact that Marx found it necessary to recapitulate 
the plan of the entire part in chapter XLIII, which was 
the last portion of the section on rent in the manuscript. This 
was so much more welcome to the editor, as the manu- 
script began with chapter XXXVII, which was followed 
by chapters XLV to XLVII, whereupon chapters XXXVIII 
to XLIV came next in order. The greatest amount of labor 
was involved in getting up the tables for the differential rent, 
II and in the discovery that the third case of this class of 
rent, which belonged in chapter XLIII, had not been analyzed 
there. 

Marx had made entirely new and special studies for this 
part on ground rent, in the seventies. He had studied for 
years the originals of the statistical reports and other publica- 
tions on real estate, which had become inevitable after the 
" reform " of 1861 in Eussia. He had made extracts from 
these originals, which had been placed at his disposal to the 
fullest extent by his Eussian friends, and he had intended to 
use these notes for a new elaboration of this part. Owing 
to the variety of forms represented by the real estate and 
the exploitation of the agricultural producers of Eussia, this 
country was to play the same role in the part on ground rent 
that England did in volume I in the case of industrial wage- 
labor. Unfortunately he was prevented from carrying out 
this plan. 

The seventh part, finally, was fully written out, but only as 
a first draft, whose endlessly involved periods had to be dis- 
sected, before they could be presented to the printer. Of the 
last chapter, only the beginning existed. In it the three great 
classes of developed capitalist society, land owners, capitalists 
and wage laborers, corresponding to the three great forms of 

to 



Preface. 17 

revenue, and the class-struggle necessarily arising with their 
existence, were to be presented as the actual outcome of the 
capitalist period. It was a habit of Marx to reserve such 
concluding summaries for the final revision, so that the latest 
historical developments furnished him with never failing reg- 
ularity with the proofs of the correctness of his theoretical 
analyses. 

The quotations and extracts corroborating his statements are 
considerably less numerous than in the first volume, as they 
already were in the second. Wherever the manuscript re- 
ferred to statements of earlier economists, only the name was 
given as a rule, and the quotations were to be added later. Of 
course, I had to leave this as it was. Of reports of parlia- 
ment only four have been used, but these were abundantly 
exploited. They are the following: 

1) Eeports from Committees (of the Lower House), Vol- 
ume VIII, Commercial Distress, Volume II, Part I, 184Y-48. 
Minutes of Evidence. Quoted as " Commercial Distress, 
184Y-48." 

2) Secret Committee of the House of Lords on Commer- 
cial Distress, 1847. Report printed 1848. Evidence printed 
1857 (because it was considered too hazardous in 1848). — 
Quoted as " Commercial Distress, 1848-57." 

3) & 4) Eeport, Bank Acts, 1857. — The same, 1858.— 
Eeports of the Committee of the Lower House on the Effect 
of the Bank Acts of 1844 and 1845. With evidence. — 
Quoted as " Bank Acts," or " Bank Committee," 1857 or 
1858. 

I hope to start on the fourth volume, the history of theories 
of surplus-value, as soon as conditions will permit me. 



In the preface to the second volume of Capital I had to 
square accounts with those gentlemen, who were making much 

B 



1 8 Preface. 

ado over the alleged fact that they had discovered in the per- 
son of Rodbertus the " Secret source and a superior prede- 
cessor to Marx." I offered them an opportunity to show what 
the economics of Rodbertus could accomplish. I asked them 
to demonstrate the way " in which an equal average rate of 
profit can and must come about, not only without a violation 
of the law of value, .but by means of it." These same gentle- 
men, who were then celebrating the brave Rodbertus as an 
economist star of the first magnitude, either for subjective or 
objective reasons which were as a rule anything but scientific, 
have without exception failed to answer the problem. How- 
ever, other people have thought it worth their while to occupy 
themselves with this problem. 

In his critique of the second volume (Conrad's Jahrhilcher, 
XI, 1885, pages 452-65), Professor Lexis takes up this ques- 
tion, although he does not pretend to give a direct solution 
of it. He says : " The solution of that contradiction " 
(namely the contradiction between the law of value of Ri- 
cardo-Marx and an equal average rate of profit) " is impos- 
sible, if the various classes of commodities are considered in- 
dividually, if their value is to be equal to their exchange- 
value, and this again equal or proportional to their price." 
According to him this solution is possible only, if " the deter- 
mination of value for the individual commodities according to 
labor is relinquished, the production of commodities viewed as 
a whole, and their distribution among the aggregate classes 
of capitalists and laborers regarded from the same point of 
view. . . . The laboring class receives but a certain por- 
tion of the total product, . . . the other portion falls to 
the share of the capitalists and represents the surplus-product, 
as understood by Marx, and accordingly . . . the sur- 
plus-value. The members of the capitalist class divide this 
entire surplus-value among themselves, not in proportion to the 



Preface. 19 

number of laborers employed by them, but in proportion to the 
amount of capital invested by each one. The land is thereby 
regarded as belonging in tlie class of capital- value." The 
Marxian ideal values determined by the units of labor incor- 
porated in the commodities do not correspond to the prices, 
but may be " regarded as points of departure of a movement, 
which leads to the actual prices. These are conditioned on 
the fact that capitals of equal magnitude demand equal 
profits." In consequence some capitalists will secure higher 
prices for their commodities than the ideal values, and others 
will secure less. " But since the losses or gains of surplus- 
value mutually balance one another in the capitalist class, the 
total amount of the surplus-value is the same as though all 
prices were proportional to the ideal values." 

It is evident that the problem has not been solved by any 
means through these statements, but it has been at least cor- 
rectly formulated, although in a somewhat loose and shallow 
manner. And this is, indeed, more than we had a right to 
expect from a man who prides himself somewhat on being a 
" vulgar economist." It is even surprising when compared 
with the handiwork of some other vulgar economists, which 
we shall discuss later. The vulgar economy of Lexis is of a 
rather peculiar nature. He says that the gains of the capital- 
ist Trmy be derived in the way indicated by Marx, but there 
are no reasons that would compel us to accept this view. On 
the contrary, vulgar economy is said to have a simpler expla- 
nation, namely the following : " The capitalist sellers, such 
as the producer of raw materials, the manufacturer, the whole- 
sale dealer, the retail dealer, all inake a profit on their trans- 
actions, each selling his product at a higher price than the 
purchase price, each adding a certain percentage to the price 
paid by him. The laborer alone is unable to raise the price 
of his commodity, he is compelled, by his oppressed condition, 



20 Preface. 

to sell his labor to the capitalist at a price corresponding to 
its cost of production, that is to say, for the means of his sub- 
sistence. . . . Therefore the capitalist additions to the 
prices strike the laborer with full force and result in the 
transfer of a part of the value of the total product to the capi- 
talist class." 

jSTow it does not require much thought to show that this 
explanation of vulgar economy for the profits of capital 
amounts to the same thing as the Marxian theory of surplus- 
value. For Lexis thus admits that the laborers are in just 
that forced condition of oppression which Mai'x has described ; 
that they are just as much exploited here as they are according 
to Marx, because every idler can sell commodities above their 
value, while the laborer alone cannot do so ; and that it is just 
as easy to build up a plausible vulgar socialism on this theory, 
as it was to build up another kind of socialism in England 
on the foundation of Jevons' and Menger's theory of use- 
value and marginal profit. I strongly suspect that Mr. 
George Bernard Shaw, were he familiar with this theory of 
profit, would eagerly extend both hands for it, discard Jevons 
and Karl Menger, and build on this rock the Fabian church 
of the future. 

In reality, this theory is merely a transcript of the Marxian. 
What is the fund out of which all these additions to the prices 
are paid ? The " total product " of the working class. And 
it is due to the fact that the commodity " labor," or, as Marx 
has it, " labor-power," must be sold below its price. For if 
it is a common quality of all commodities to be sold at a 
price above their cost of production, with the sole exception of 
labor, then labor is sold below the price which is the rule in 
this world of vulgar economy. The extra profit thus accruing 
to the capitalist, or to the capitalist class, then arises in the 
last analysis from the fact that the laborer, after he has made 



Preface. 21 

up for the price of his labor-power by reproducing it, must 
produce a surplus-product for wbicb he is not paid, in other 
words, he produces surplus-value representing unpaid labor. 
Lexis is very careful in the choice of his terms. He does not 
say anywhere outright that this is his own conception. But if 
it is, then it is evident that he is not one of those vulgar 
economists, every one of whom is, as he says himself, " a hope- 
less idiot in the eyes of Marx," but that he is a Marxian dis- 
guised as a vulgar economist. Whether this disguise is con- 
sciously or unconsciously adopted, is a psychological ques- 
tion which does not interest us at this point. The man who 
can find this out may also be able to discover how it is that 
some time ago a man of Lexis' intellectual endowments could 
defend such nonsense as bimetallism. 

The first one who really attempted to answer this question 
was Dr. Conrad Schmidt in his pamphlet entitled, The 
Average Rate of Profit, Based on Marx's Theory of Value, 
Stuttgart, Dietz, 1889. Schmidt seeks to reconcile the de- 
tails of the formation of commodity prices with the 
theory of value and with an average rate of profit. The 
industrial capitalist receives in his product, first, an equiv- 
alent for the capital advanced by him, and second, a sur- 
plus-product for which he has not paid anything. But in 
order to earn his surplus-product, he must advance capital for 
its production. He must employ a certain quantity of ma- 
terialized labor for the purpose of appropriating this surplus- 
product. For the capitalist, the capital advanced by him 
represents the quantity of materialized labor which is socially 
necessary for the production of his surplus-product. This 
applies to every industrial capitalist. Now, since commodi- 
ties, according to the theory of value, are exchanged for one 
another in proportion to the social labor required for their 
production, and since the labor necessary for the manufacture 



22 Preface. 

of the capitalist's surplus-product is accumulated in the cap- 
ital of the capitalist, it follows that surplus-products are ex- 
changed in proportion to the capitals required for their pro- 
duction, and not in proportion to the labor actually incor- 
porated in them. Hence the share of each unit of capital is 
equal to the sum of all produced surplus-values divided by 
the sum of the capitals employed in production. Accordingly, 
equal capitals yield equal profits in equal times, and this is 
accomplished by adding the cost price of the surplus-product 
figured on the basis of the average profit to the cost price 
of the paid product and selling both the paid and unpaid 
product at this increased price. Thus the average rate of 
profit arises in spite of the fact that, according to Schmidt, 
the average prices of commodities are determined by the law 
of value. 

This is a very ingenious construction. It is made entirely 
after the Hegelian model, but it has this in common with the 
majority of the Hegelian constructions that it is not correct. 
It makes no difference whether the surplus-product or the 
paid product is considered. If the theory of value is to be ap- 
plied directly to the average profit both of these products must 
be sold in proportion to the socially necessary labor incorpor- 
ated in them. The theory of value is aimed at the very outset 
against the idea, derived from the capitalist mode of thought, 
that the accumulated labor of the past, which is embodied in 
capital, could be anything else but a certain quantity of finished 
values, namely also a creator of values greater than itself, see- 
ing that it is an element in production and in the formation 
of profit. The theory of value demonstrates that living labor 
alone has this faculty of creating surplus-values. It is well 
known that the capitalists expect to reap profits in proportion 
to the magnitude of their capitals, looking upon their advances 
of capital as a sort of cost price of their profits. But if 



Preface. 23 

Schmidt utilizes this conception for the purpose of harmoniz- 
ing by means of it the prices calculated according to the aver- 
age rate of profit and those based on the theory of value, he 
thereby repudiates this theory of value, for he embodies in 
it as one of its factors a conception which is wholly at variance 
with it. 

Either accumulated labor creates values the same as living 
labor, and in that case the law of value does not apply. 

Or, it is not a creator of values, and in that case Schmidt's 
demonstration is irreconcilable with the law of value. 

Schmidt was misled into straying into this bypath when 
being quite close to the solution^ because he believed that he 
would have to find as mathematical a formula as possible, by 
which the agreement of the average price of every individual 
commodity with the law of value could be demonstrated. But 
while he has followed a wrong path in this instance, close to 
the real goal, he shows by the rest of his booklet that he 
has very understandingly draAvn other conclusions from the 
first two volumes of Capital. His is the honor of having 
found by independent effort the correct answer given by 
Marx in the third part of the third volume of his work for 
the hitherto inexplicable sinking tendency of the rate of 
profit ; and of having furthermore correctly shown the genesis 
of commercial profit out of industrial surplus-value, and of 
having made a series of statements concerning interest and 
ground rent, by which he has anticipated things developed 
by Marx in the fourth and fifth part of the third volume of 
his work. 

In a subsequent article (Neue Zeii, 1892-93, l^os. 4 and 
5), Schmidt tries another way to solve the problem. It 
amounts to the statement that competition brings about an 
average rate of profit by causing the emigration of capital 
from lines of production with profit below the average to 



24 Preface. 

lines with profit above the average. There is nothing new in 
the statement that competition is the great equalizer of profits. 
But Schmidt tries to prove that this leveling of profits is 
identical with a reduction of the selling price of commodi- 
ties produced in excess to a measure in keeping with a price 
which society can pay for it according to the law of value. 
The analyses of Marx in this work show sufiiciently why this 
way could not lead to any solution. 

After Schmidt, it w^as P. Fireman who attempted a solu- 
tion of the problem (Conrad's Jahrhilcher, dritte Folge, III, 
page 793). I shall not discuss his remarks on some of the 
other aspects of the Marxian analyses. He starts out from 
the mistaken assumption that Marx wishes to define where 
he is only analyzing, or that one may look in Marx's work at 
all for fixed and universally applicable definitions. It is a 
matter of course that when things and their mutual interrela- 
tions are conceived, not as fixed, but as changing, that their 
mental images, the ideas concerning them, are likewise sub- 
ject to change and transformation; that they cannot be sealed 
up in rigid definitions, but must be developed in the histor- 
ical or logical process of their formation. From this it will be 
imderstood why Marx starts out in the beginning of his first 
volume, where he makes the simple production of commodities 
his historical premise and then proceeds from this basis to 
capital, from a simple commodity instead of its ideologically 
and historically secondary form, a capitalistically modified 
commodity. Fireman cannot understand that at all. I pre- 
fer to pass over these and other side-issues and proceed at 
once to the gist of the matter. While the author is taught 
by the theory that surplus-value is proportional to the labor- 
powers employed, provided a certain rate of surplus-value is 
given, he learns from experience that profit is proportional 
to the magnitude of the total capital employed, provided a 



Preface. 25 

certain average rate of profit is given. Fireman explains this 
by saying that profit is merely a conventional phenomenon 
(which means, in his language, that it belongs to a definite 
social formation with which it stands and falls). Its exist- 
ence is simply dependent on capital. If this is strong enough 
to secure a profit for itself, it is also compelled by competition 
to bring about the same rate of profit for all capitals. In 
other words, capitalist production is impracticable without an 
equal rate of profit. Assuming this to be the mode of pro- 
duction, the quantity of profit for the individual capitalist 
can depend only on the magnitude of his capital, if the rate of 
profit is given. On the other hand, profit consists of surplus- 
value, of unpaid labor. And how is the transformation of 
surplus-value, determined in quantity by the degree of labor 
exploitation, into profit, determined' in quantity by the mag- 
nitude of the employed capital, accomplished ? " Simply by 
selling commodities above their value in all lines of production 
in which the ratio between . . . constant and variable 
capital is greatest, and this implies on the other hand that the 
commodities are sold below their value in all lines of produc- 
tion in which the ratio between constant and variable capital 
is smallest, so that commodities are sold at their true value 
only in lines of production in which the ratio of c:v repre- 
sents a definite medium magnitude. . . .Is this discrep- 
ancy between the prices and values of commodities a refuta- 
tion of the principle of value ? By no means. For since the 
prices of some commodities rise above value to the same extent 
that the prices of others fall below it, the total sum of prices 
remains equal to the total sum of values . . . the incon- 
gruity disappears in the last instance." This incongruity is 
a " disturbance " ; and " in the exact sciences it is not the 
custom to regard a calculable disturbance as a refutation of a 
certain law." 



26 Preface. 

On comparing the relevant passages of chapter IX with 
these statements, it will be seen that Fireman has indeed 
placed his finger on the salient point. But the undeservedly 
cool reception given to his able article proves that Fireman 
still needed many interconnecting links, even after this dis- 
covery of his, before he would have been enabled to work out a 
full and comprehensible solution. Although many were in- 
terested in this problem, they were all afraid of burning their 
fingers with it. And this is due not only to the incomplete 
form in which Fireman left his discovery, but also to the un- 
deniable faultiness of his conception of the Marxian analyses 
and his critique of them based on his misconception. 

Whenever there is an opportunity to make himself ridicu- 
lous by attempting a difficult feat, professor Julius Wolf of 
Zurich never fails to exhibit himself. He tells us (Conrad's 
Jahrbucher, neue Folge, II, pages 352 and following) that 
the entire problem is solved by the relative surplus-value. 
The production of relative surplus-value rests on the increase 
of the constant capital as compared to the variable capital. 
" A plus in constant capital has for its premise a plus in the 
productive power of the laborers. Since this plus in produc- 
tive power (by way of cheapening the necessities of life) pro- 
duces a plus in surplus-value, the direct relation between an 
increase of surplus-value and an increasing share of the con- 
stant capital in the total capital is revealed. A plus in con- 
stant capital indicates a plus in the productive power of labor. 
Therefore, if the variable capital remains the same and the 
constant capital increases, surplus-value must also increase, 
and we are in agreement with Marx. This was the problem 
which we were to solve." 

Now Marx says the direct opposite in a hundred passages 
of the first volume. Furthermore, the assertion that, accord- 
ing to Marx, relative surplus-value increases in proportion 



Preface. 2y 

as the constant capital is augmented while the variable capi- 
tal decreases, is so astounding that it defies all parliamentarian 
language. And finally Mr. Julius Wolf demonstrates in every 
line that he has neither relatively nor absolutely the least 
understanding of relative or absolute surplus-value. Truly 
he says that " at first glance one seems to be in a nest of in- 
congruities/' whichj by the way, is the only true statement 
in his whole article. But what does that matter ? Mr. Julius 
Wolf is so proud of his brilliant discovery that he cannot 
refrain from bestowing posthumous praise on Marx for it and 
advertising his own fathomless nonsense as a " renewed proof 
of the acuteness and farsightedness with which Marx has 
drawn up his critical system of capitalist economy." 

But that is not the worst. Mr. Wolf says : " Eicardo like- 
wise claimed that an equal investment of capital yielded equal 
surplus-values (profit), and that the same expenditure of labor 
created the same amount of surplus-value. And the question 
was : How does the one agree with the other ? But Marx 
did not acknowledge this form of the problem. He has doubt- 
less shown (in the third volume), that the second statement 
is not necessarily a consequence of the law of value, or that 
it even contradicts his law of value and must, therefore, 
. . . be directly repudiated." And thereupon Wolf seeks 
to find out whether Marx or I made a mistake. Of course, 
it does not occur to him that he is the one who is wandering in 
darkness. 

It would be an insult to my readers, and a total disregard 
for the humor of the situation, were I to lose one word about 
this gem of a passage. I merely wish to add this : With the 
same boldness, which enabled him to foretell even then what 
Marx " has doubtless shown " in the third volume, he avails 
himself of this opportunity to report an alleged gossip among 
the professors to the effect that Konrad Schmidt's above- 



28 Preface. 

named work was " directly inspired by Engels." Mr. Julius 
Wolf ! In the world in which you live it may be customary 
for a man to challenge others publicly for the solution of some 
problem and to acquaint his private friends clandestinely with 
this solution. That you are capable of such a thing is not 
hard to believe. But that a man need not stoop to such mean 
tricks in the world in which I live, is shown by the present 
preface. 

Marx had hardly died, when Mr. Achille Loria hastily 
published an article about him in the Nuova Antologia (April, 
1883). He starts out with a biography of Marx full of mis- 
information, and follows it up with a critique of Marx's public, 
political and literary activity. He misrepresents the mate- 
rialist conception of history of Marx and twists it with an 
assurance which indicates a great purpose. And this purpose 
was later accomplished. In 1886, the same Mr. Loria pub- 
lished a book entitled La teoria economica della costituzione 
politica (The Economic Foundations of Society), in which 
he announced to his admiring contemporaries that the ma- 
terialist conception of history, so completely and purposely 
misrepresented by him in 1883, was his own discovery. True, 
the Marxian theory is reduced to a rather Philistine level in 
this book. And the historical illustrations and proofs aboimd 
in mistakes which would not be pardoned in a high school 
boy. But what does that matter ? Pie thinks he has estab- 
lished his claim that the discovery that always and every- 
where the political conditions and events are explained by cor- 
responding, economic conditions was not made by Marx in 
1845, but by Mr. Loria in 1886. At least this is what he has 
tried to make his countrymen believe, and also some French- 
men, for his book has been translated into French. And now 
he can pose in Italy as the author of a new and epoch-making 



Preface. 29 

theory of history, -until the Italian socialists will find time to 
strip the illustre Loria of his stolen peacock feathers. 

But this is only an insignificant sample of Mr. Loria's style 
of doing things. He assures us that all of Marx's theories 
rest on conscious sophistry (un consaputo .sofisma) ; that Marx 
was not above using false logic, even though he knew it to be 
so (sapendolitali), etc. And after thus biasing his readers 
by a whole series of such contemptible insinuations, in order 
that they may regard Marx as just such an unprincipled up- 
start as Loria, accomplishing his effects by the same shameless 
and foul means as this professor from Padua, he has a very 
important secret for tKe readers, and incidentally he touches 
upon the rate of profit. 

Mr. Loria says: According to Marx, the amount of sur- 
plus-value (which Mr. Loria here mistakes for profit) pro- 
duced in an industrial establishment under capitalism de- 
pends on the variable capital employed in it, since the con- 
stant capital does not yield any profit. But this is contrary to 
fact. For in practice the profit is not measured by the vari- 
able, but by the total capital. And Marx himself recognizes 
this (Vol. I, chapter XI) and admits that the facts seem to 
contradict his theory. But how does he get over this contradic- 
tion ? He refers his readers to a subsequent volume which 
has not yet been published. Loria had previously told his 
readers with reference to this unpublished volume, that he 
did not believe that Marx had ever thought for a moment of 
writing it. And now he exclaims triumphantly : " Not 
without good reason did I contend that this second volume, 
which Marx always fiings into the teeth of his adversaries 
without ever publishing it, might very well be a shrewd ex- 
pedient, to which Marx always resorted whenever scientific 
arguments failed him (un ingegnoso spediente ideato dal 



30 Preface. 

Maro: a sostituzione degli argomenti scientifici) . And who- 
ever is not convinced after this that Marx stood on the same 
level of scientific swindle with the illustre Loria, is past all 
redemption. 

We have at least learned this much: According to Mr. 
Loria, the Marxian theory of surplus-value is absolutely ir- 
reconcilable with the fact of a general and equal rate of 
profit. But at last the second volume of Capital appeared. 
It contained my public challenge referring to this point. If 
Mr. Loria had been one of us diffident Germans, he would 
have felt a certain embarrassment. But he is a bold south- 
erner, he comes from a hot climate and can claim that a cool 
nerve is a natural requirement for him. The question con- 
cerning the rate of profit has been publicly put. Mr. Loria 
has publicly declared that it is insoluble. And for this very 
reason he is now going to outshine himself by publicly solv- 
ing it. 

This miracle is accomplished in Conrad's JaJirhilcher, 'N. 
F., vol. XX, pages 2Y2 and following, in an article dealing 
with Konrad Schmidt's above-cited pamphlet. After Loria 
has learned from Schmidt how the commercial profit is made, 
he sees everything clearly. " Since a determination of value 
by means of labor-time gives an advantage to those capitalists 
who invest a greater portion of their capital in wages, the 
unproductive " (he means commercial) " capital can extort 
from these privileged capitalists a higher interest " (he means 
profit) " and thus bring about an equalization between the 
individual industrial capitalists. . . . For instance, if 
each of the industrial capitalists A, B, C, use 100 working 
days and 0, 100^ and 200 constant capital respectively in 
production, and if the wages for 100 working days amount 
to 50 working days, then every capitalist receives a surplus- 
value of 50 working days, and the rate of profit is 100% 



Preface. 3 1 

for the first 33.3% for the second, and 20% for the third 
capitalist. But if a fourth capitalist D accumulates an un- 
productive capital of 300, which extorts an interest " (profit) 
" equal in value to 40 working days from A, and an interest 
of 20 working days from B, then the rate of profit of the 
capitalists A and B will sink to 20% the same as that of 
C, and D with his capital of 300 will receive a profit of 
60, or a rate of profit of 20%, the same as the other cap- 
italists." 

With such astonishing dexterity Villustre Loria solves 
sleight of hand fashion the same question which he had de- 
clared insoluble ten years previously. Unfortunately he did 
not hetray to us the secret of the way in which the owners 
of the " unproductive capital " obtain the power to extort 
from those industrials their extra-profit exceeding the aver- 
age rate of profit and to keep it in their own pockets in the 
same way in which the land owner pockets the surplus-profit 
of the capitalist farmer as ground rent. For according to 
this the commercial capitalists would be levying upon the 
industrials a tribute analogous to ground rent and thereby 
bring about an equalization of the rate of profit. Now, the 
commercial capital is indeed a very essential factor in the 
equalization of the rate of profit, as nearly everybody knows. 
But only a literary adventurer, who in the bottom of his 
heart cares naught for political economy, can venture the as- 
sertion that commercial capital has the magic power to absorb 
all profits above the average rate of profit, even before this 
average rate has become established, and to convert it into 
ground-rent for itself without even requiring any real es- 
tate for this purpose. Nor is the assertion less astonishing 
that commercial capital has the gift of discovering those 
industrials, whose surplus-value just covers the average rate 
of profit, and that it considers it an honor to mitigate the 



32 Preface. 

fate of those luckless victims of the Marxian law of value by 
selling its products to them free of charge, without asking 
as much as a commission for it. What a mountebank a man 
must be in order to imagine that Marx had to have recourse 
to such miserable tricks ! 

But Mr. Loria does not shine in his full glory, until we 
compare him with his northern competitors, for instance with 
Mr. Julius Wolf, who was not born yesterday, either. What 
a small coyote Mr. Wolf seems to be, even in his big volume 
on Socialism and the Capitalist Order of Society, compared 
to that Italian! How clumsily, I am almost tempted to say 
modestly, does he stand forth beside the noble cheek of the 
maestro who pretends as a matter of course that Marx is 
just such a sophist, poor logician, liar and mountebank as 
Mr. Loria himself, that Marx bamboozles the public with a 
promise of completing his theory in some future volume 
which he neither will nor can write, as he very well knows, 
whenever he gets into a tight place ! Unlimited nerve 
coupled to the smoothness of an eel when slipping through 
impossible situations, a heroic imperviousness to kicks re- 
ceived by him, a hasty appropriation of the accomplish- 
ments of others, an importunate charlatanry of advertising, 
an organization of fame by the help of a clique of friends — 
who can equal him in all these ? 

Italy is the land of classic lore. Since the great time 
when the morning glow of the modern world rose over it, it 
produced magnificent characters of unequalled classic per- 
fection, from Dante to Garibaldi. But the time of its deg- 
radation under the rule of strangers also bequeathed classic 
character-masks to it, among them two especially sharply 
chiseled types, that of Sganarelli and Dulcamara. The 
classic unity of both is embodied in our illustre Loria. 

In conclusion I must take my readers across the Atlantic. 



Preface. 33 

Dr. (med.) George C. Stiebeling, of ]^ew York, also found 
a solution of the problem, and a very simple one at that. It 
was so simple that no one on either side of the ocean cared 
to take him seriously. This aroused his ire, and he com- 
plained about this outrage in an endless number of pamphlets 
and newspaper articles, on both sides of the great water. He 
was told in the Neue Zeit that his solution was based en- 
tirely on an error in his calculation. But this did not dis- 
turb him in the least. Marx had also made many errors of 
calculation, and yet he was right. Let us, then, take a 
closer look at Dr. Stiebeling's solution. 

" Take two factories working with equal capitals for an 
equal length of time, but with different proportions of their 
constant and variable capitals. The total capital (c -|~ v) 
will be regarded as equal to y, and the difference in the pro- 
portion of the constant to the variable capital equal to x. 
In the first factory, y is equal to c + v, in the second y is 
equal to (c — x) -j- (v -|- x). The rate of surplus-value is 
therefore in the first factory equal to -^j and in the second 
factory equal to v=x- I designate as profit (p) the total 
surplus-value (m), by which the total capital y, or c + v, 
is augmented in the given time, in other words, p is 
equal to m. Hence the rate of profit in the first fac- 
tory is equal to -^, or ^, and in the second factory like- 
wise equal to -|-, or (^_^)!^^^^y) , that is to say, it is also 
equal to ~. The . . . problem solves itself in such a 
way that, on the basis of the law of value, equal capitals em- 
ploying unequal quantities of living labor in equal lengths of 
time, a change in the rate of surplus-value brings about the 
equalization of an average rate of profit." (G. C. Stiebe- 
ling, The Law of Value and the Rate of Profit, ]^I"ew York, 
John Heinrich.) 



34 Preface. 

In spite of the beautiful clearness of the above calculation, 
we cannot refrain from asking Dr. Stiebeling this question: 
How does he know that the sum of surplus-values produced 
by the first factory is exactly equal to the sum of surplus- 
values produced in the second factory? He states explicitly 
that c, V, y and x, that is to say, all the other factors in the 
calculation, are equal in both factories, but not a word about 
m. It follows by no means that these two quantities of sur- 
plus-value are equal simply because he designates them both 
by m. On the contrary, this is precisely what must be 
proved, especially since Dr. Stiebeling also identifies the 
profit p without further ceremony with the surplus-value m. 
]S[ow, only two possibilities present themselves. Either the 
m's are equal, both factories produce equal quantities of sur- 
plus-value, and therefore, since both capitals are equal, also 
equal quantities of profit. If so, then Dr. Stiebeling has 
taken for granted at the outset what he was called upon to 
prove. Or, one factory produces more surplus-value than the 
other, and in that case his entire calculation falls to the 
ground. 

Mr. Stiebeling spared neither pains nor money in building 
upon this erroneous calculation of his mountains of other 
calculations and exhibiting them to the public. I can assure 
him, for his own peace of mind, that nearly all of his calcula- 
tions are equally wrong, and whenever they are not, they 
prove something entirely different from what he set out to 
prove. He proves, for instance, by a comparison of the 
U. S. census figures for 1870 and 1880 that the rate of profit 
has actually fallen, but explains this fact wrongly, assuming 
that he has to correct Marx for working his theory with a 
never changing, stable, rate of profit. But the third part of 
the third volume of Capital shows that this " stable rate of 
profit " in Marxian economics is purely a figment of Dr. 



Preface. '35 

Stiebeling'a brain, and that the falling rate of profit is due 
to causes which are just the reverse of those indicated by Dr. 
Stiebeling. ISTo doubt Dr. Stiebeling has the best intentions, 
but a man who undertakes to discuss scientific questions 
should learn above all to read the works of the author, whom 
he wishes to study, just as they have been written, and espe- 
cially riot to find anything in them which they do not contain. 
The outcome of the entire investigation, also in this ques- 
tion, shows once more that. the Marxian school is the only 
one which has accomplished something in this line. When 
Fireman and Konrad Schmidt read this third volume, they 
will have good reasons for being well satisfied with the work 
done by each of them. 

Fkedeeick Engels. 
London, October 4, 1894. 



VOLUME III. 

THE PROCESS OF CAPITALIST 
PRODUCTION AS A WHOLE. 



PAET I. 



THE CONVERSION OF SURPLUS- VALUE INTO 
PROFIT AND OF THE RATE OF SURPLUS- 
VALUE INTO THE RATE OF PROFIT. 



CHAPTER L 

COST PRICE AND PEOFIT. 

N the first volume we analyzed the phenomena presented 
by the process of capitalist production, considered by 
itself as a mere productive process without regard to any sec- 
ondary influences of conditions outside of it. But this process 
of production, in the strict meaning of the term, does not ex- 
haust the life circle of capital. It is supplemented in the 
actual world by the process of circulation, which was the 
object of our analysis in the second volume. We found in 
the course of this last-named analysis, especially in part III, 
in which we studied the intervention of the process of circu- 
lation in the process of social reproduction, that the capitalist 
process of production, considered as a whole, is a combination 
of the processes of production and circulation. It cannot be the 
object of this third volume to indulge in general reflections 
relative to this combination. We are rather interested in lo 

37 



38 Capitalist Production. 

eating the concrete forms growing out of the movements of 
capitalist production as a whole and setting them forth. In 
actual reality the capitals move and meet in such concrete 
forms that the form of the capital in the process of production 
and that of the capital in the process of circulation impress 
one only as special aspects of those concrete forms. The 
conformations of the capitals evolved in this third volume 
approach step by step that form which they assume on the 
surface of society, in their mutual interactions, in competi- 
tion, and in the ordinary consciousness of the human agencies 
in this process. 



The value of every commodity produced by capitalist 
methods is represented by the formula : C = c -f- v -|- s- 
If we subtract the surplus-value s from this value of the 
product, there remains only an equivalent for the value of the 
capital c -f" V expended for the elements used in the produc- 
tion of this commodity. 

Take it that the production of a certain article requires 
the expenditure of a capital of 500 p.st., of which 20 p.st. 
are consumed by the wear and tear of instruments of produc- 
tion, 380 p.st. spent for materials of production, and 100 
p.st. for labor-power. And let the rate of surplus-value be 
100%. In that case the value of this product is equal to 
400 c + 100 V + 100 s, or 600 p.st. 

After deducting the surplus-value of 100 p.st., we have a 
remaining commodity-capital of 500 p.st., which is only an 
equivalent for the consumed capital of 500 p.st. This por- 
tion of the value of the commodity, which makes good the 
price of the consumed means of production and the price of 
the employed labor-power, replaces only the amount paid by the 
capitalist himself for this commodity and represents, there- 
fore, from his point of view the cost price of this commodity. 

However, the cost of this commodity to the capitalist, and 
the actual cost of this commodity, are two vastly different 
amounts. That portion of the value of the commodity which 
consists of surplus-value does not cost, the capitalist anything 
for the reason that it costs the laborer unpaid labor. But on 



Cost Price and Profit. 39 

the basis of capitalist production, the laborer plays the role of 
an ingredient of productive capital as soon as he has been in- 
corporated in the process of production. Under these cir- 
cumstances the capitalist poses as the actual producer of the 
commodity. For this reason the cost price of the commodity 
to the capitalist necessarily appears to him as the actual cost 
of the commodity. If we designate the cost-price by k, we 
can transcribe the formula C = c + v -|- s into the formula 
C = k -j- s, that is to say, the value of a commodity is equal 
to the cost price plus the surplus-value. 

In this way the classification of the various values making 
good the value of the capital consumed in the production of 
the commodity under the term of cost price expresses, on the 
one hand, the specific character of capitalist production. The 
capitalist cost of the commodity is measured by the expendi- 
ture of capital, while the actual cost of the commodity is 
measured by the expenditure of labor. The capitalist cost- 
price of the commodity, then, is a quantity different from its 
value, or its actual cost-price. It is smaller than the value 
of the commodity. For since C = k + s, it is evident that 
k = — s. On the other hand, the cost-price of a commod- 
ity is by no means a mere heading in capitalist bookkeeping. 
The actual existence of this portion of value continually exerts 
its practical influence in the actual production of the commod- 
ity, because it must be ever reconverted from its commodity- 
form, by way of the process of circulation, into the form of 
productive capital, so that the cost-price of the commodity 
must always buy anew the elements of production consumed 
in its creation. 

However, the cost-price as a heading in bookkeeping has 
nothing to do with the formation of the value of a commodity, 
or with the process of self-expansion of capital. When I 
know that five-sixths of the value of a conunodity worth 600 
p.st., or 500 p.st., represent but an equivalent for the capital 
consumed in its production and suffice only for the purchase 
of new material elements of the same capital, I know nothing as 
yet of the way in which these five-sixths representing the cost- 
price of the commodity are produced, nor do I know anything 



40 Capitalist Production. 

about tlie production of tlie last sixth which constitutes its 
surplus-value. ISTevertheless we shall see in the course of our 
analysis that the cost-price plays in capitalist economics the 
false role of a category in the actual production of values. 

Let us return to our example. Take it that the value pro- 
duced by one laborer in an average social working day is rep- 
resented by 6 shillings in money. In that case the advanced 
capital of 500 p.st. consisting of 400 c + 100 v represents the 
values produced in 1666f working days of ten hours each. 
Of this amount 1333^ working days are crystallized in the 
value of the means of production amounting to 400 p.st, 
(400 c), and 333^ working days are crystallized in the value 
of labor-power amounting to 100 p.st. (100 v). Having as- 
sumed a rate of surplus-value of 100%, the production of the 
new commodity costs an expenditure of labor-power amount- 
ing to 100 V + 100 s, or 666f working days of ten hours each. 

We know^ then, as shown in volume I, chapter VII, that 
the value of the newly created product of 600 p.st. is com- 
posed, 1), of the reappearing value of the constant capital 
of 400 p.st. expended for means of production, and 2), of a 
newly produced value of 200 p.st. The cost-price of the 
commodity, or 500 p.st., comprises the reappearing 400 c and 
one-half of the newly produced value of 200 p.st., that is to 
say 100 V. In other words, it comprises two elements of the 
value of the commodity which are of widely different origin. 

Owing to the appropriate character of the labor expended 
during 666f working days of ten hours each, the value of the 
means of production consumed in this process, to the amount 
of 400 p.st., is transferred to the product. This previously 
existing value thus reappears as an element of the value of 
the procluct, but is not created in the process of production of 
this commodity. It exists as an element of the value of this 
commodity only for the reason that it previously existed as an 
element of the invested capital. The expended constant cap- 
ital, then, is replaced by that portion of the value of the com- 
modity which this capital transfers to the commodity of its 
own accord in the labor-process. This element of the cost- 
price, therefore, has an ambiguous meaning. On the one 



Cost Price and Profit. 41 

hand it passes into the cost-price of the commodity, because 
it is an element of that portion of the value of the commodity 
which replaces consumed capital. And on the other hand it 
forms an element of the value of the commodity only for the 
reason that it is the value of consumed capital, or because the 
means of production cost a certain sum. 

It is different with the other element of the cost-price. 
The 666f working days expended in the production of the 
commodity create a new value of 200 p.st. One portion of 
this new value replaces only the advanced variable capital 
of 100 p.st., which is the price of the labor-power employed. 
But this advanced capital-value does not participate in the 
creation of the new value. So far as the advance of capital 
is concerned, labor-power counts as a value. But in the 
process of production, labor-power performs the function of 
creating value. The place of the mere value of labor-power 
in the advance of capital is taken in the actual process of pro- 
ductive capital by living labor-power which creates value. 

This difference of the various elements of the value of a 
commodity which constitute the cost-price becomes evident 
whenever a change takes place either in the amount of the 
value of the expended constant capital or in that of the ex- 
pended variable capital. For instance, let the price of the 
same means of production, or of the constant portion of capi- 
tal, rise from 400 p.st. to 600 p.st., or fall to 200 p.st. In the 
first case it is not only the cost-price of the commodity which 
rises from 500 p.st. to 600 c + 100 v, or 700 p.st., but also 
the value of the commodity which rises from 600 p.st. to 
600 c -{- 100 V + 100 s, or 800 p.st. In the second case, it is 
not only the cost-price which falls from 500 p.st. to 200 c + 
100 V, or 300 p.st., but also the value of the commodity which 
falls from 600 p.st. to 200 c + 100 v + 100 s, or 400 p.st. 
Because the expended constant capital transfers its own value 
to the product, therefore the value of the product rises or falls 
with the absolute magnitude of that capital-value, other cir- 
cumstances remaining the same. But on the other hand let 
us assume that, other circumstances remaining the same, the 
price of the same amount of labor-power rises from 100 p.st. 



42 Capitalist Production. 

to 150 p.st., or falls from 100 p.st. to 50 p.st. In the first case, 
the cost-price rises indeed from 500 p.st. to 400 c + 150 v, or 
550 p.st., and in the second case it falls from 500 p.st* to 
400 c + 50 V, or 450 p.st. But in either case, the value of 
the commodity remains unchanged at 600 p.st. In the first 
case it is 400 c + 150 v + 50 s, in the second 400 c + 50 v 
+ 150 s, but in either case it is 600 p.st. The advanced vari- 
able capital does not transfer its own value to the product. 
The place of its value is taken in the product by a new value 
created by labor. Therefore a change in the value of the 
absolute magnitude of the variable capital, to the extent that 
it expresses merely a change in the price of labor-power, does 
not alter the absolute magnitude of the value of the commod- 
ity in the least, because it does not alter anything in the 
absolute magnitude of the new value created by living labor. 
Such a change influences only the relative proportion of the 
magnitudes of the two elements of the new value, one of 
which forms surplus-value, and the other of which makes 
good the variable capital and passes into the cost-price of the 
commodity. 

The two elements of the cost-price, in the present case 
400 c -|- 100 V, have only this in common that they are both 
of them elements of the value of the commodity replacing ad- 
vanced capital. 

But this actual condition of things must necessarily look 
reversed from the point of view of capitalist production. 

The capitalist mode of production is distinguished from 
a mode of production based on slavery by this fact among 
others that in the former the value, or the price, as the case 
may be, of labor-power assumes the form of the value, or 
price, of labor itself, that is to say, the form of wages. 
(Volume I, chapter XIX.) The variable portion of the 
advanced capital, therefore, presents itself as a capital ad- 
vanced in wages, as a capital-value paying for the value, 
or price, of all labor expended in production. Take it, for 
instance, that an average social working day of ten hours 
is represented by 6 shillings of money. In that case the 
advance of a variable capital of 100 p.st. expresses in money 



Cost Price and Profit. 43 

the value of a product created in 333^ ten-hour days. But 
this value, being an element of the advance of capital for the 
purchase of labor-power, is not an element of the productive 
capital in the actual performance of its function. Its place 
in the process of production is taken by living labor-power. 
If the degree of exploitation of this labor-power is 100%, 
as it is in our illustration, then it is expended during 666f 
ten-hour days, and thereby adds to the product a new value 
of 200 p.st. On the other hand, the variable capital of 100 
p.st, figures in the advance of capital as a capital invested 
in wages, or as the price of labor performed in 666f ten- 
hour days. Dividing 100 p.st. by Q^Q^, we obtain 3 shil- 
lings as the price of a working day of ten hours, equal in 
value to the product of five hours' labor. 

ISTow, if we compare the advance of capital on one side 
with the value of commodities on the other, we find the 
following condition of things : 

I. Capital advanced 500 p.st., consisting of 400 p.st. of 
capital expended in means of production (price of means of 
production) plus 100 p.st. of capital expended in wages 
(price of 666f working days, or wages for the same). 

II. Value of commodities 600 p.st. of which 500 p.st. repre- 
sent the cost-price (400 p.st. price of expended means of pro- 
duction plus 100 p.st. price of expended 666f working days) 
plus 100 p.st. surplus-value. 

In this formula, the portion of capital invested in labor- 
power differs from that invested in means of production 
(such as cotton or coal) only by serving for the payment of 
a substantially different element of production. But it does 
not differ by serving in a different function in the process of 
creating the value of the commodities, and thereby in the 
process of self-expansion of capital. The price of the means 
of production reappears in the cost-price of the commodities, 
just as it figured in the advance of capital, and it does so for 
the reason that the means of production have been appropri- 
ately consumed. The cost-price of the commodities also con- 
tains the price, or wages, for the 66 6f working days con- 
sumed in the production of these commodities, which wages 



44 Capitalist Production. 

figured also in tlie advance of capital, likewise for the reason 
that this amount of labor has been appropriately expended. 
We see only finished and existing values, representing por- 
tions of the value of advanced capital which have passed into 
the value of the product, but no element representing newly 
created values. The distinction between constant and vari- 
able capital has disappeared. The entire cost-price of 500 
p.st. now has the ambiguous meaning that it is that portion 
of the value of commodities worth 600 p.st. which makes good 
the capital of 500 p.st. expended in the production of these 
commodities, and that it owes its existence as a portion of the 
value of these commodities only to the fact of having pre- 
viously existed as the cost-price of the consumed elements of 
production, namely means of production and labor, in other 
words, of having existed as an advance of capital. The capi- 
tal-value reappears as the cost-price of commodities, because 
it had been expended as a capital-value. 

The fact that the various elements of the value of the ad- 
vanced capital have been expended for substantially different 
elements of production, namely for instruments of labor, raw 
materials, auxiliary substances, and labor, requires only that 
the cost-price of the commodities should buy a new supply of 
these substantially different elements of production. So far 
as the formation of this cost-price is concerned, only one dis- 
tinction is appreciable, namely that between fixed and circu- 
lating capital. In our example we had set down 20 p.st. for 
wear and tear of instruments of labor (400 c being composed of 
20 p.st. for wear and tear of instrmnents of labor and 380 p.st. 
for materials of production). Supposing the value of those in- 
struments of labor to have been 1200 p.st. before the productive 
process began, it will exist after the production of the com- 
modities in two forms, one of them being represented by 20 
p.st. of the value of the commodities, and the other by 1200 
— 20, or 1180 p.st., the remaining value of the instruments 
of labor in the possession of the capitalist, in other words, 
an element of his productive, not of his commodity-capital. 
On the other hand, the materials of production and wages, 
differ from the instruments of labor by being entirely con- 



Cost Price and Profit. 45 

sumed in the production of the commodities and transferring 
their entire value to that of the produced commodities. We 
have seen that the turn-over bestows upon these different ele- 
ments of the advanced capital the forms of fixed and circulat- 
ing capital. 

The advance of capital, according to this, is 1680 p.st., con- 
sisting of 1200 p. St. of fixed capital plus 480 p.st. of circulat- 
ing capital (380 p.st. of which are materials of production 
and 100 p.st. of which are wages). 

But the cost-price of the commodities is only 500 p.st., 
namely 20 p.st. for the wear and tear of the fixed capital, and 
480 p.st. for circulating capital. 

This difference between the cost-price of the commodities 
and the advance of capital merely proves that the cost-price 
of the commodities is formed exclusively by the capital ac- 
tually consumed in their production. 

- In the production of the commodities, instruments of pro- 
duction valued at 1200 p.st. are employed, but only 20 p.st. 
of this advanced capital are consumed in production. The 
employed fixed capital, then, passes only partially into the 
cost-price of commodities, because it is consumed only by de- 
grees in their production. The employed circulating capital 
passes entirely into the cost-price of commodities, because it 
is entirely consumed in production. But what else does this 
prove than that the consumed portions of fixed and circulating 
capital, in the ratio of the magnitude of their values, pass 
uniformly into the cost-price of the commodities, and that 
this portion of the value of commodities originates solely with 
the capital consumed in their production ? If this were not 
the case, it would be inexplicable why the advanced fixed cap- 
ital of 1200 p.st. should not add, aside from the 20 p.st. which 
it loses in the productive process, also the other 1180 p.st. 
which it does not lose therein. 

This difference between fixed and circulating capital with 
reference to the calculation of the cost-price affirms, we re- 
peat, the apparent origin of the cost-price in the expended 
capital-value, or in the price paid by the capitalist himself 
for the expended elements of production, including labor. 



46 Capitalist Production. 

On the other hand, the variable portion of capital invested 
in labor-power is explicitly identified, under the head of cir- 
culating capital, with that portion of the constant capital 
which consists of materials of production, so far as the forma- 
tion of value is concerned. And by this means the mystifica- 
tion of the process of self-expansion of capital is accom- 
plished.^ 

Hitherto we have considered only one element of the value 
of conmiodities, namely the cost-price. We must now occupy 
ourselves also with the other element of the value of commod- 
ities, namely the excess over the cost-price, or the surplus- 
value. In the first place, then, surplus-value is an excess of 
the value of a commodity over its cost-price. But since the 
cost-price is equal to the value of the consumed capital, into 
whose substantial elements it is continually reconverted, the 
additional value is an accretion to the capital expended in the 
production of the commodities and returning by way of the 
circulation. 

We have seen previously that the surplus-value s owes its 
origin in point of fact to a change in the value of the vari- 
able capital V and is, therefore, really but an increment of 
variable capital. ISTevertheless it is also an increment of the 
expended total capital c + v after the process of production 
has been completed. The formula c + (^ + s), which in- 
dicates that s is produced by the conversion of a definite cap- 
ital-value V, a constant magnitude, into a fluctuating magni- 
tude by means of the labor-power paid by it, may also be 
represented as (c -fr v) -[- s. Before production began, we 
had a capital of 500 p.st. After production is completed, 
we have the same capital of 500 p.st. plus an increment of 
value amounting to 100 p.st.^ 

* In volume I, chapter IX, 3, we have shown by the example of N. W. Senior 
what confusion this may create in the head of the economist. 

2 " From what has gone before, we know that surplus-value is purely the result 
of a variation in the value of v, of that portion of the capital which is trans- 
formed into labor-power; consequently, v + s equals v + v', or v plus an increment 
of V. But the fact that it is v alone that varies, and the conditions of that 
variation, are obscured by the circumstance that in consequence of the increase 
of the variable component of the capital there is also an increase in the sum 
total of the advanced capital. It was originally 500 p.st. and becomes 590 p.st." 
(Volume I, chapter IX, 1.) 



Cost Price and Profit. . 47 

However, the surplus-value is an increment, not only of 
that portion of the advanced capital which is assimilated by 
the process of j)roduction, but also of that portion which is 
not assimilated. In other v/ords, it is an accretion, not only 
to the consumed capital which is made good by the cost-price 
of commodities, but also to the aggregate capital invested in 
production. Before the beginning of the production we had 
a capital valued at 16S0 p.st., namely 1200 p.st. of fixed capi- 
tal invested in instruments of production, only 20 p.st. of which 
are assimilated in the process by the commodities through 
wear and tear, plus 480 p.st. of circulating capital invested in 
materials of production and wages. At the close of the proc- 
ess of production we have 1180 p.st. remaining of the value 
of the productive capital plus a commodity-capital of 600 p.st. 
By adding these two amounts, we find that the capitalist now 
has values amounting to 1780 p.st. After deducting his in- 
vested total capital of 1680 p.st., the capitalist pockets a sur- 
plus of 100 p.st. In short, the 100 p.st. of surplus-value 
form as much an increment of the invested 1680 p.st. as of 
the 500 p.st., or that part of it which was assimilated by the 
production. 

The capitalist understands well enough that this increment 
of value has its genesis in the productive manipulations of 
capital, that it is generated out of the capital. For this in- 
crement exists at the close of the productive process, while it 
did not exist at its beginning. So far as the capital assimi- 
lated in production is concerned, the surplus-value seems to 
arise equally from all its different elements consisting of 
means of production and labor. For all these elements con- 
tribute equally to the formation of the cost-price. All of 
them add their values, which are advanced as capital, to the 
value of the product, and they are not distinguished as con- 
stant and variable magnitudes. This becomes obvious, when 
we assume for a moment that all assimilated capital consisted 
either of wages exclusively, or of the values of means of pro- 
duction alone. In the first case, we should then have in 
place of the commodity-values 400 c +100 v -|- 100 s the 
commodity-values 500 v -j- 100 s. The capital of 500, in- 



48 . Capitalist Production. 

vested in wages, represents the value of all labor assimilated 
in the production of the commodity-value of 600 p.st,, and 
therefore it constitutes the cost-price of this entire product. 
But the way in which this cost-price is formed, and in which 
the value of the expended capital is reproduced as a portion 
of the value of the product, is the only process in the forma- 
tion of the value of this product known to us. We do not 
know anything of the way in which its surplus-portion of 
100 p.st. is formed. It is the same in the second case, in 
which the value of the commodities would be equal to 500 c 
+ 100 s. We know in either case that the surplus-value 
arises from a given value, because this value was advanced in 
the form of productive capital, no matter whether in the form 
of labor or of means of production. On the other hand, this 
advanced capital-value cannot form any surplus-value for the 
sole reason that it has been expended and constitutes the cost- 
price of the commodities. Tor the fact that it forms the 
cost-price of the commodities accounts precisely for the cir- 
cumstance that it constitutes no surplus-value, but merely an 
equivalent replacing the expended capital. To the extent 
that it forms surplus-value it does so not in its specific ca- 
pacity of expended, but of advanced and invested capita^. 
In short, the surplus-value arises as much out of that portion 
of the advanced capital which makes good the cost-price of 
the commodities as out of that portion which is not made up 
by the cost-price. In other words, it arises equally- out of 
the fixed and circulating components of the invested capital. 
The total capital serves substantially as the creator of values, 
the instruments of labor as well as the materials of production 
and labor. The total capital passes substantially into the ac- 
tual labor-process, even though only a portion of it is .assim- 
ilated by the process of self-expansion. This is, perhaps, the 
very reason why it contributes only in part to the formation 
of the cost-price, but totally to the formation of the surplus- 
value. However that may be, the outcome is that surplus- 
value arises simultaneously from all portions of the invested 
capital. This deduction may be materially abbreviated, "by 
saying pointedly and briefly in the words of Malthus : " The 



Cost Price and Profit. 49 

capitalist expects equal returns on all parts of the capital ad- 
vanced by him." ^ 

In its alleged capacity of an offspring of the advanced 
total capital, the surplus-value assumes the change of form 
known as profit. Hence a certain value is capital when it 
is advanced with a view to generating profit,^ or profit re- 
sults from the investment of a value as capital. If we desig- 
nate profit by p, we may convert the formula C = c -f- v -J- 
s, or k -j- s, into the formula C = k -}- p, in other words, 
the value of a commodity is equal to the cost-price plus the 
profit. 

The profit, such as it presents itself here, is the same as 
the surplus-value, only it has a mystified form, which is a 
necessary outgrowth of capitalist modes of production. The 
genesis of the mutation of values must be transferred from the 
variable portion of capital to the total capital, because no dis- 
tinction is noticeable between the constant and variable capi- 
tal in the assumed formation of the cost-price. Because the 
price of labor-power assumes on one pole the form of wages, 
surplus-value appears at the other pole in the form of profit. 

We have seen that the cost-price of a commodity is smaller 
than its value. Since C equals k -f- s, it follows that k equals 
C — s. The formula C = k -|- s reduces itself to C = k, 
or commodity-value equal to cost-price, only when s is zero, a 
case which never occurs on the basis of capitalist production, 
although peculiar market combinations may reduce the sell- 
ing price of commodities to the level of their cost-price, or 
even below it. 

Hence, if a commodity is sold at its value, a profit is real- 
ized, which is equal to the excess of its value over its cost- 
price, or equal to the entire surplus-value incorporated in the 
value of the commodity. But the capitalist may sell a com- 
modity at a profit even when selling it below its value. Tor 
so long as its selling price exceeds its cost-price, even though 

' Malthus, Principles of Political Economy, second edition, London, 1836, pages 
267, 268. 

*" Capital: that which is expended with a view to profit." Malthus, Definitions 
in Political Economy. London, 1827, page 86. 

D 



50 Capitalist Production. 

it may be below its value^ a portion of the surplus-value in- 
corporated in it is always realized and thus a profit made. 
The value of the commodities in our illustration is 600 p.st., 
their cost-price 500 p.st. If the commodities are sold at 510, 
520, 530, 560 or 590, p.st, they are sold respectively at 90, 80, 
70, 40, or 10 p.st. below their value, and yet a profit of 
respectively 10, 20, 30, 60, or 90 p.st. is realized by their sale. 
It is evident that selling prices may fluctuate considerably be- 
tween the value of a commodity and its cost-price. The 
greater the surplus-element of the value of commodities, the 
greater is the practical playroom of these fluctuating inter- 
mediate prices. 

This explains such phenomena of daily occurrence in com- 
petition as underselling, abnormally low prices in certain 
lines of industry, etc.® The fundamental law of capitalist 
competition, w^hich political economy has not understood up to 
the present time, the law which regulates the general rate of 
profit and the prices of production determined by it, rests, as 
we shall see later, on this difference between the value and the 
cost-price of commodities, and on the resulting possibility to 
sell a commodity at a profit even below its value. 

The minimum limit of the selling price of commodities is 
indicated by their cost-price. If they are sold below their 
cost-price, then the consumed elements of productive capital 
cannot be fully reproduced out of the selling price. If this 
sort of thing continues, then the value of the advanced capital 
disappears. This point of view is sufficient to incline the 
capitalist toward the opinion that the cost-price is essentially 
the inmost value of commodities, because it is the price re- 
quired for the bare conservation of his capital. Further- 
more, the cost-price of a commodity is the purchase price paid 
by the capitalist himself for its production, in other words, 
the purchase price determined by the process of production 
itself. For this reason, the surplus-value realized by the 
sale of a certain commodity appears to the capitalist as an 
excess of its selling price over its value, instead of an excess 
of its value over its cost-price, so that accordingly the surplus- 

" Compare volume I, chapter XVII, I. 



Cost Price and Profit. 5 1 

value incorporated in a commodity is not realized by its sale, 
but arises out of the sale itself. We have thrown more light on 
this illusion in volume I, chapter V, under the head of " Con- 
tradictions in the General Formula of Capital." We merely 
revert at this point to that form in which it was reaffirmed by 
Torrens, among others, as an advance of political economy 
beyond Kicardo. 

" The natural price consisting of the cost of production, or 
in other words, of the expenditure of capital in the production 
or manufacture of a commodity, cannot possibly include any 
profit. ... If a farmer advances 100 quarters of corn, 
in the cultivation of his fields, and receives in return 120 
quarters, the 20 quartets, being a surplus of the product above 
the investment, form his profit; but it would be absurd to 
call this surplus, or profit, a part of his expenditure. . . . 
The manufacturer advances a certain quantity of raw ma- 
terials, tools, and subsistence for labor, and receives in re- 
turn, a quantity of finished products. This finished product 
must contain a greater exchange-value than the raw materials, 
tools, and means of subsistence, by whose advance it was ac- 
quired." Torrens concludes, therefore, that the excess of the 
selling price over the cost-price, or the profit, is due to the fact 
that the consumers, " by a direct or circuitous exchange yield 
a certain larger portion of all ingredients of capital than it 
cost to produce them." ^ 

In fact, the excess over a certain magnitude cannot form a 
part of this magnitude. Therefore the profit, the excess of 
the value of a commodity over the expenditure of the capi- 
talist, cannot form a part of this expenditure. Hence, if no 
other element than the advance of the capitalist enters into 
the formation of the value of a commodity, it is inexplicable 
that more value should come out of production than went into 
it, for something cannot come out of nothing. Torrens, how- 
ever, dodges this creation out of nothing only by transferring 
it from the sphere of commodity-production to that of commod- 
ity-circulation. Profit cannot come out of the production 

9 R. Torrens, An Essay on the Production of Wealth. London, 1821, pages 
61-53, and 70-71. 



52 Capitalist Production. 

of commodities, says Torrens, for otherwise it would already 
be contained in the cost of production, and that would not be 
a surplus over this cost. Profit cannot come out of the ex- 
changes of commodities, replies Ramsay, unless it existed be- 
fore this exchange. The sum of their values of the ex- 
changed products is evidently not altered by their exchange. 
It remains the same as before this exchange. Incidentally 
w^e remark at this point, that Malthus invokes expressly the 
authority of Torrens,'^ although he himself explains the sale 
of commodities above their value differently, or rather does 
not explain it, since all arguments of this sort ultimately 
amount to the same thing as the one-time famous negative 
weight of phlogiston. 

In a society ruled by capitalist production, even the non- 
capitalist producer is dominated by capitalist conceptions. 
In his last novel, Les Paysans, Balzac, who is generally re- 
markable for his profound grasp of actual conditions, aptly 
describes how the little peasant, in order to retain the good 
will of his usurer, performs many small tasks gratuitously for 
him and fancies that he does not give him anything for noth- 
ing, because his own labor does not cost him any cash outlay. 
The usurer, on the other hand, thereby kills two flies at one 
stroke. He saves a cash outlay for wages and gets the farmer 
more and more tangled in the net of the spider of usury, by 
gradually ruining him through the deviation of his labor from 
his OAvn fields. 

The thoughtless conception that the cost-price of a commod- 
ity constitutes its actual value, and that surplus- value 
arises by selling the product above its value, so that commod- 
ities would be sold at their value, if their selling price w^ere 
equal to their cost-price, that is to say, equal to the price of 
the means of production plus wages incorporated in them, has 
been heralded to the world as a newly discovered secret of 
socialism by Proudhon with his customary charlatanry in 
the guise of science. In fact, this reduction of the value of 
commodities to their cost-price constitutes the basis of his 
People's Bank. We have demonstrated in a preceding chap- 

^ Malthus, Definitions in Political Economy. London, 1853, pages 70, 71. 



Cost Price and Profit. 53 

ter that the various elements of the value of the product 
may be materialized in proportional parts of the product it- 
self. (Volume I, chapter IX, 2.) For instance, if the 
value of 20 lbs. of yarn is 30 shillings, containing 24 shil- 
lings of means of production, 3 shillings of labor-power, and 
3 shillings of surplus-value, then this surplus-value may be 
represented by x^of the product, or 2 lbs. of yam. Now, 
\ if these 20 lbs. of yarn are sold at their cost-price, at 27 
shillings, then the purchaser receives 2 lbs. of yarn for noth- 
ing, or the article is sold yg- below its value. But the laborer 
has performed the same amount of surplus-labor, only in this 
case it accrues to the benefit of the purchaser of the yarn, not 
to its capitalist producer. It would be a mistake to assume ; 
that if all commodities were sold at their cost-price the result I 
would be the same as if they had all been sold above their ' 
cost-price, at their real value. For even if the value of labor- 
power, the length of the working day, and the degree of ex- 
ploitation of labor were the same everywhere, the quantities 
of surplus-value contained in the values of the various kinds 
of commodities would be unequal, according to the different 
organic composition of the capitals advanced for their pro- 
duction.^ 



CHAPTER II. 



THE. EATE OF PROFIT. 



The general formula of capital is M — C — M'. In other 
words, a certain quantity of values is thrown into circulation ^ 
for the purpose of drawing a larger quantity out of it. The 
process by which this larger quantity is produced is capitalist 
production. The process by which this larger quantity is 
realized is the circulation of capital. The capitalist does 
not produce a commodity on its own account, he does not 

^ " The masses of value and surplus-value produced by different capitals — the 
value of labor-power being given and its degree of exploitation being equal — vary- 
directly as the amounts of the variable constituents of these capitals, i.e., as their 
constituents transformed into living labor-power." (Volume I, Chapter IX.) 



54 Capitalist Production. 

care for its use-value, nor does he consume it personally. The 
product in which the capitalist is really interested is not 
the tangible product itself, but the excess of the value of the 
product over the value of the capital assimilated by it. The 
capitalist advances the total capital without regard to the 
diiferent roles played by its components in the production of 
surplus-value. He advances all these components uniformly, 
not merely for the purpose of reproducing the advanced capi- 
tal, but rather with a view to producing a surplus-value in 
excess of it. He cannot convert the value of the variable 
capital advanced by him into a greater value except by its ex- 
change for living labor and by the exploitation of this labor. 
But he cannot exploit this labor unless he advances at the 
same time the material requirements for the incorporation of 
this labor, namely instruments and materials of labor, ma- 
chinery and raw materials. This he can do only by convert- 
ing a certain amount of value in his possession into require- 
ments of production. He could not be a capitalist at all, nor 
undertake to exploit labor, unless he enjoyed the privilege of 
owning the material requirements of production and finding 
at hand a laborer who owns nothing but his labor-power. 
We have already shown in the first volume that it is precisely 
the ownership of means of production by idlers which con- 
verts laborers into wage-workers and idlers into capitalists. 

It is immaterial for the capitalist whether he is supposed 
to advance constant capital in order to make a profit out of 
his variable capital, or whether he advances variable capital 
in order to make a profit out of the constant capital ; whether 
he invests money in wages in order to make his machinery 
and raw materials more valuable, or whether he invests money 
in machinery and raw materials in order to be able to exploit 
labor. Although it is only the variable portion of capital 
which creates surplus-value, it does so only on condition that 
the other portions, the material requirements of production, 
are likewise advanced. Seeing that the capitalist can ex- 
'ploit labor only by advancing constant capital, and that he 
can utilize his constant capital only by advancing variable 



The Rate of Profit. 55 

capital, he lumps tliem all together in his imagination, and 
he is all the more apt to do so as the actual rate of his gain 
is not calculated on its proportion to the variable, but on its 
proportion to the total capital, in other words, that it is cal- 
culated on the rate of profit, not on the rate of surplus-value. 
And we shall see that the rate of profit may remain unchanged 
and yet may express different rates of surplus-value. 

The cost of the product includes all those elements of its 
value which the capitalist has paid, or for which he has 
thrown an equivalent into circulation. This cost must be 
made good in order that the capital may merely be pre- 
served, or reproduced in its original magnitude. 

The value contained in a certain commodity is equal to the 
labor-time required for its production, and the sum of this 
labor consists of paid and unpaid portions. But the expenses 
of the capitalist consist only of that portion of materialized 
labor which he paid for the production of the commodity. 
The surplus-value contained in this commodity does not cost 
the capitalist anything, while it cost the laborer his labor 
just as well as that portion for which he is paid, and although 
it creates value and is embodied in the value of the commod- 
ity quite as well as the paid labor. The profit of the capi- 
talist is due to the fact that he offers something for sale for 
which he has not paid anything. The surplus-value, or the 
profit, consists precisely of the excess of the value of the 
commodity over its cost-price, in other words, it consists of 
the excess of the total amoimt of labor embodied in the com- 
modity over the paid labor contained in it. The surplus- 
value, whatever be its genesis, is a surplus above the ad- 
vanced total capital. The proportion of this surplus to the 
total capital is expressed by the fraction -^, in which C 
stands for the total capital. Thus we obtain the rate of 
profit ■^ = ^, as distinguished from the rate of surplus- 
value -^. __ 

The rate of surplus-value measured by the variable capital 
is called rate of surplus-value. The rate of surplus-value 
measured by the total capital is called rate of profit. These 



■56 Capitalist Production. 

two modes of measuring the same magnitude express different 
conditions or relations of this magnitude, owing to the differ- 
ence of the two standards of measurement. 

The transformation of surplus-value into profit must be 
deduced from the transformation of the rate of surplus-value 
into the rate of profit, not vice versa. And the rate of profit 
is indeed that from which historical research takes its de- 
parture. The surplus-value and the rate of surplus-value 
are, relatively, the invisible and unknown essence, while the 
rate of profit and the resulting appearance of surplus-value in 
the form of profit are phenomena which show themselves on 
the surface. 

So far as the individual capitalist is concerned, it is evi- 
dent that the only thing which interests him is the relation of 
surplus-value, of the excess of value at which he sells his 
articles, to the total capital advanced for the production of 
commodities. On the other hand, the definite relation of 
this surplus, and its internal connection, with the various 
components of capital does not interest him, for it is rather 
to his interest to indulge in vague notions relative to this 
definite relation and this internal connection. 

Although the excess in the value of a commodity over its 
cost-price is created in the process of production, strictly so 
called, it is realized in the process of circulation. And it 
assumes so much more easily the semblance of arising from 
the process of circulation, as it depends in reality on the mar- 
ket conditions under competition wdiether any surplus is real- 
ized or not, or how much of it. It is not necessary to lose 
any words at this point about the fact that it is merely a 
different way of dividing the surplus-value, w^hen a commod- 
ity is sold above or below its value, and that this different 
division, this change of proportions in -which different per- 
sons share in the surplus-value, does not alter in the least the 
magnitude or the nature of that value. It is not alone the 
metamorphoses discussed by us in volume II which take place 
in the process of circulation, but they are accompanied by 
actual competition, the sale and purchase of commodities 
above or below their value, so that the surplus-value realized 



The Rate of Profit. 57 

"bj the individual capitalist depends as much on the outcome 
of the mutual endeavor to outwit one another as on the direct 
exploitation of labor. 

Aside from the working time, the time of circulation exerts 
its influence in the process of circulation and limits the 
amount of surplus-value realizable within a certain period. 
Still other elements arise in the process of circulation and in- 
fluence the strict process of production. Both the strict 
process of production and the process of circulation continu- 
ally intermingle, interpenetrate one another, and thereby in- 
cessantly falsify their characteristic marks of distinction. 
The production of surplus-value, and of value in general, re- 
ceives new directions in the process, of circulation, as we have 
previously shown. Capital passes through the cycle of its 
metamorphoses. Finally it steps, so to say, forth out of the 
internal organism of its life and enters into external condi- 
tions of existence, into conditions in which the opposites are 
not capital and labor, but capital and capital in one case, and 
individual buyers and sellers in another. The time of cir- 
culation and the working time cross one another's paths and 
seem to determine equally the amount of surplus-value. The 
original form in which capital and wage-labor meet one an- 
other is disguised by the interference of conditions which 
seem to be independent of them. The surplus-value itself 
does not appear to be the result of the appropriation of labor- 
time, but an excess of the selling price of commodities over 
their cost-price, so that this last named price is easily re- 
garded as their intrinsic value, while profit appears as an 
excess of the selling price of commodities over their immanent 
value. 

It is true, that the nature of the surplus-value impresses 
itself incessantly upon the consciousness of the capitalist dur- 
ing the process of production. This is shown, among other 
indications, by his greed for the labor-time of others, to which 
we called attention in the analysis of surplus-value. But in 
the first place, the strict process of production is but a fleeting 
stage passing continually into the process of circulation, just 
as this does into it, so that the more or less vague inkling of 



58 Capitalist Production. 

the source of the gains made in the process of production, the 
source of the surplus-value, stands at best on the same ground 
with the idea that the realized surplus is due to a movement 
of capital in the process of circulation and independent of the 
process of production, a movement of capital independent of 
its relation to labor. These phenomena of circulation are 
quoted by modern economists like Ramsay, Malthus, Senior, 
Torrens, etc., as direct proofs of the alleged fact that capital, 
in its mere material existence, independent of any social re- 
lation to labor Avhich makes capital of it, may be a source of 
surplus-value quite as well as labor itself and without its 
help. In the second place, under the head of expenses, among 
which wages are classed the same as the price of raw mate- 
rials, wear and tear of machinery, etc., the appropriation of 
unpaid labor figures only as a saving in the payment of an 
article added to the expense, only as a smaller payment for a 
certain quantity of labor. A saving is recorded in the same 
way, whenever raw materials are bought more cheaply, or the 
wear and tear of machinery decreases. In this way the ap- 
propriation of surplus-labor loses its specific character. Its 
characteristic relation to the surplus-value is obscured. And 
this is greatly facilitated, as shown in volume I, part VI, by 
the representation of the value of labor-power in the form of 
wages. 

By posing equally as sources of an excess of value (profit), 
all elements of capital mystify the nature of the capitalist 
relation. 

The way in which surplus-value is transformed into profit 
via the rate of profit is but a continued development of the 
perversion of subject and object taking place in the process 
of production. We have already seen that all subjective 
forces of labor in that process appeared as productive forces 
of capital. On the one hand, the value of past labor, which 
dominates living labor, is incarnated in the capitalist. On 
the other hand the laborer appears as materialized labor- 
power, as a commodity. This perverted relationship neces- 
sarily produces even under simple conditions of production 
certain correspondingly perverted conceptions, which repre- 



The Rate of Profit. 59 

sent a transposition in consciousness, that is further devel- 
oped bj the transformations and modifications of the circula- 
tion process proper. 

We can see by the example of the Hicardian school that it 
is a mistake to attempt a development of the laws of the rate 
of profit directly out of the laws of the rate of surplus-value, 
or vice versa. In the head of the capitalist they are nat- 
urally not distinguished. In the formula -^ the surplus- 
value is measured by the value of the total capital advanced 
for its production and partly consumed in it, partly merely 
invested in it. Indeed, the formula -^ expresses the de- 
gree of self-expansion of the total capital advanced, or, to 
state it in conformity with the conception of the internal or- 
ganic connection and nature of surplus-value, it indicates the 
proportion of the variation of the variable capital to the mag- 
nitude of the advanced total capital. 

The magnitude of the value of the total capital has no di- 
rect internal relation to the magnitude of the surplus-value. 
So far as its material elements are concerned, the total minus 
the variable capital, in other words, the constant capital, con- 
sists of the material ingredients, the instruments and mate- 
rials of production, required for the materialization of labor. 
In order that a certain quantity of labor may be incorporated 
in commodities and thereby produce value, a certain quantity 
of instruments and materials of production is required. Ac- 
cording to the peculiar character of the incorporated labor, a 
definite technical relation is established between the quantity 
of labor and the quantity of means of production in which 
this labor is to be incorporated. To that extent there is also a 
definite relation between the quantity of surplus-value, or 
surplus-labor, and the quantity of means of production. Tor 
instance, if the necessary labor for the production of wages 
amounts to 6 hours daily, then the laborer must work 12 
hours in order to perform 6 hours of surplus-labor, or pro- 
duces a surplus-value of 100%. He uses up twice as many 
means of production in 12 hours as he does in 6. But never- 
theless the surplus-value incorporated by him in 6 hours is 
not directly related to the value of the means of production 



6o Capitalist Production. 

used up in those 6, or in those 12 hours. This value is here 
immaterial. It is only the technically required mass which 
is important. It does not matter whether the raw materials 
or instruments of labor are cheap or dear, so long as they have 
the required use-value and are available in quantities propor- 
tioned to the technical demands of the labor to be incor- 
porated in them. Now, if I know that x lbs. of cotton are 
consumed by one hour's spinning and cost a shillings, then I 
also know that 12 hours' spinning will consume 12 x lbs. of 
cotton costing 12 a shillings. And in that case I can calcu- 
late the proportion of the surplus-value to the value of the 12 
as well as to that of the 6. But the relation of the living 
labor to the value of the means of production enters here only 
to the extent that a shillings serve as a name for x lbs. of 
cotton. For a definite quantity of cotton has a definite price, 
and therefore a definite price may also serve as an index to 
a definite quantity of cotton, so long as the price of cotton is 
not changed. If I know that I must let the laborer work 
for 12 hours, in order to appropriate for my own 6 hours of 
surplus-labor, and if I know the price of this quantity of cot- 
ton needed for 12 hours, then I have a circuitous means of 
determining the proportion between the price of cotton (as 
an index of the required quantity) and the surplus-value. 
But on the other hand, I can never make any conclusions from 
the price of the raw material as to the quantity that may be 
consumed by one hour's spinning, but not by 6 hours'. There 
is, then, no necessary internal connection between the value 
of the constant capital, nor the value of the total capital 
c -|- V, and the surplus-value. 

If the rate of surplus-value is known and its magnitude 
given, then the rate of profit expresses nothing else but what 
it actually is, namely a different way of measuring surplus- 
value, this being measured by the value of the total capital, 
instead of the value of that portion of capital from which 
surplus-value directly originates by way of an exchange with 
labor. But in reality, in the world of phenomena, the condi- 
tions are reversed. Surplus-value is given, but only as an 
excess of tlie selling price of commodities over their cost-price. 



The Rate of Profit. 6l 

And it remains a mystery where this surplus is originated, 
whether it is due to the exploitation of labor in the process 
of production, or to overcharging the purchaser in the process 
of circulation, or to both. There is also given the proportion 
of the surplus-value to the value of the total capital, or the 
rate of profit. The calculation of this excess of the selling 
price over the cost-price of commodities on the value of the 
advanced total capital is very important and natural, because 
by its means the ratio is actually determined in which the 
total capital has been expanded, the ratio of its self-expansion. 
If the rate of profit is made the point of departure, there is 
no basis on which to make any conclusions regarding the 
specific relations between the surplus and the variable capital 
invested in wages. We shall see in a' subsequent chapter 
what funny somersaults Malthus made in trying to get in this 
way at the secret of the surplus-value and of its specific re- 
lation to the variable capital. What the rate of profit ac- 
tually shows is a uniform relation of the surplus to equal 
portions of the total capital, which from this point of view 
does not show any internal differences at all, unless it be that 
between fixed and circulating capital. And this difference 
is shown only because the surplus is calculated in two ways. 
In the first place it is calculated as a simple magnitude, as 
an excess of the selling price over the cost-price. In this 
form, the entire circulating capital enters into the cost-price, 
while of the fixed capital only the wear and tear enters into 
it. In the second place, the relation of this excess in value 
to the total value of the advanced capital is calculated. In 
this case, the value of the fixed capital is taken into the cal- 
culation entirely, the same as that of the circulating capital. 
In other words, the circulating capital enters both times in 
the same way, while the fixed capital enters the first time in 
a different, the second time in the same way as the circulating 
capital. Under these circumstances, the difference between 
the fixed and circulating capital is the only one which ob- 
trudes itself. 

The excess in value, then, if determined by the rate of 
profit, appears as a surplus generated annually, or during a 



62 Capitalist Production. 

definite period of circulation, bj the total capital above its 
own value. 

While the rate of profit differs numerically from the rate 
of surplus-value, the profit and the surplus-value are actually 
the same thing and numerically equal. However, the profit 
is a transformed kind of surplus-value, a form in which its 

« origin and the secret of its nature are obscured and extin- 
guished. Profit is, therefore, that disguise of surplus-value 
which must be removed before the real nature of surplus- 
value can be discovered. In the surplus-value, the relation 
between capital and labor is laid bare. But in the relation 
of capital and profit, that is to say, the relation between 
capital and that form of surplus-value which appears on one 
hand as an excess over the cost-price of commodities realized 
in the process of circulation, and on the other hand as a sur- 
plus determined by its relation to the total capital, the capital 
appears as a relation to itself, a relation in which it, as the 
original amount of value, is distinguished from a new value 
generated by itself. It is dimly recognized, that capital gen- 
erates this new value by its movement in the processes of 
production and circulation. But the way in which this is 
done is surrounded by mystery, and thus, surplus-value seems 
to be due to hidden qualities inherent in capital itself. 

To the extent that we follow up the process of self-expan- 
sion of capital, the nature of the relation of surplus-value to 
capital becomes more and more mystified, and it becomes in- 
creasingly difiicult to discover the secret of its internal or- 
ganism. 

In this first part, we shall consider the rate of profit as 

, numerically different from the rate of surplus-value, while 

profit and surplus-value will be treated as the same numerical 

magnitude having only a different form. In the second part 

we shall see that the transformation continues and that profit 

' presents itself as a magnitude differing also numerically 

C from surplus-value. 



Relation of Profit to Surplus-Value. 63 



CHAPTEK III. 

the kexration" of the kate, of profit to the eate of 

sueplijs-value;. 

We have stated at the conclusion of the preceding chapter, 
and repeat it here, that we consider in this entire first part 
the amount of profit made by a certain capital to be equal to 
the full amount of surplus-value produced by means of this 
capital during a certain period of circulation. In other 
words, we leave aside for the present the fact that this sur- 
plus-value is split up into various secondary forms, such as 
interest on capital, ground-rent, taxes, etc., and that surplus- 
value is not identical, as a rule, with profit as appropriated 
on the basis of an average rate of profit, which will be dis- 
cussed in part II. 

So far as the quantity of profit is assumed to be equal to 
that of surplus-value, its magnitude, and that of the rate of 
profit, is determined by the relations of simple numerical 
magnitudes given or ascertainable in every individual case. 
The analysis, therefore, is first carried on purely on the field 
of mathematics. 

We retain the terms used in volumes I and II. The total 
capital C consists of constant capital c and variable capital v, 
and produces a surplus-value s. The ratio of this surplus- 
value to the advanced variable capital, or ~, is called the rate 
of surplus-value and designated by s'. Therefore -^ = s', 
and s = s'v. If this surplus-value is calculated on the total 
capital instead of the variable capital, it is called profit, p, 
and the ratio of the surplus-value s to the total capital 
C, or -J-, is called the rate of profit, p'o Accordingly, 
p'=-^ = ^. E'ow, substituting for s its equivalent s'v, 
we find p' = s'-J=s'^. And this equation may be ex- 
pressed by the proportion p' : s' = v : 0, or in words, 'the 



64 Relation of Profit to Surplus-Value. 

rate of profit is proportioned to the rate of surplus-value as 
the variable capital is to the total capital. 

This proportion shows that the rate of profit, p', is al- 
ways smaller than the rate of surplus-value, s'', because the 
variable capital, v, is always smaller than the total capital, 
C, which is the sum of v -f- c, the variable plus the constant 
capital. The only exception to this rule is the practically 
inijDossible case, in which v ^= C, that is to say, in which no 
constant capital, no means of production, are advanced by 
the capitalist, but only wages. 

However, our analysis must take into account a few other 
elements, which have a determining influence on the magni- 
tude of c^ V, and s. We shall mention them briefly. 

There is, first, the value of money. We may assume this 
to be constant, throughout our analysis. 

In the second place, there is the turn-over. We leave this 
element entirely out of consideration for the present, since 
its influence on the rate of profit will be treated later on in 
a special chapter. [We anticipate here only one point, 
namely that the formula p'' = s''-^ is strictly correct only 
for one period of turn-over of the variable capital. But we 
may make it correct for an- annual turn-over by substituting 
for s', the simple rate of surplus-value, the factor s''n, mean- 
ing the annual rate of surplus-value. The factor n in this 
term expresses the number of turn-overs of the variable capi- 
tal during one year. (See chapter XVI, I, volume II.) — 
F. E.] 

In the third place, the productivity of labor must be con- 
sidered. Its influence on the rate of surplus-value has been 
thoroughly discussed in volume I, part V. The productivity 
of labor may also exert a direct influence on the rate of profit, 
at least of an individual capital. It has been demonstrated 
in volume I, chapter XII, that an individual capital may re- 
alize an extra profit, if it operates Avith a greater productivity 
than that of the social average and thereby produces its com- 
modities at a lower value than the social average value of the 
same commodities. However, this case will not be considered 
for the present, since our premise in this part of the work 



Relation of Profit to Surplus-Value. 65 

is that the commodities are produced -under normal social con- 
ditions and sold at their values. Hence we assume in each 
case that the productivity of labor remains constant. Under 
these circumstances the composition of the values of any capi- 
tal invested in any line of industry, in other words, the pro- 
portion between the variable and constant capital, expresses 
a definite degree in the productivity of labor. As soon as 
this proportion is altered by other means than a mere change 
in the value of the material elements of the constant capital, 
or a change in the value of wages, it follows that the pro- 
ductivity of labor must "likewise undergo a corresponding 
change. We shall see frequently, for this reason, that altera- 
tions affecting the factors c, v, and s imply also changes in 
the productivity of labor. 

The same applies to the three remaining factors, namely 
the length of the worMng day, the intensity of lahor, and the 
ivages. Their influence on the mass and rate of surplus- 
value has been discussed in detail in volume I. It will be 
understood, therefore, that notwithstanding our assumption 
that these three factors remain constant there may be changes 
in V and s which may imply changes in the magnitude of 
these determining elements. In this respect we have but to 
remember that wages influence the quantity of surplus-value 
and the degree of the rate of surplus-value inversely from 
the length of the working day and the intensity of labor; 
that an increase of wages reduces the surplus-value, while a 
prolongation of the working day and an increase in the in- 
tensity of labor add to it. 

Take it that a capital of 100 produces with 20 laborers by 
a working day of 10 hours and a total weekly wage of 20 a 
surplus-value of 20. Then we have 80 c + 20 v + 20 s, 
which implies that s' equal 100% and p' 20%. 

'Now let the working day be prolonged to 15 hours without 
an increase of wages. The total value produced by the 20 
laborers is thereby increased from 40 to 60, since 10 : 15 = 
40 : 60. Seeing that v, the wages paid to the laborers, re- 
mains the same, the surplus-value rises from 20 to 40, and 
we have 80 c + 20 v -}- 40 s, implying that s' equals 200% 



66 Capitalist Production. 

and p' 40%. If, on the other hand, the working day re- 
mains unchanged at 10 hours, while wages fall from 20 to 12, 
the total value produced amounts to 4-0, hut it is differently 
distributed. For v falls to 12, leaving a remainder of 28 
for s. Then we have 80c-|-12v-l-28s, whereby s' is 
raised to 233A%, while the rate of profit, p', is as 28 to 92, 
or 30it%. 

We see, then, that both a prolongation of the working day 
(or a corresponding increase in the intensity of labor) and 
a fall in wages increase the mass, and tluTS the rate, of sur- 
plus-value. On the other hand, a rise in w^ages, other circum- 
stances remaining the same, would lower the rate of surplus- 
value. Hence, if v rises through an increase of wages, it 
does not mean a greater, but only a dearer quantity of labor, 
and in that case s' and p'' do not rise, but fall. 

This indicates that a change in the working day, in the 
intensity of labor, and in wages cannot take place without at 
the same time altering v and s and their proportion, and 
therefore also p'', which expresses the proportion of s to the 
total capital c + v. And it is also evident that a change 
in the proportion of s to v implies a corresponding change in 
at least one of the three determining elements of labor. 

It is precisely this fact which reveals the specific organic 
relationship of variable capital to the movement of the total 
capital and its self-expansion, and also its difference from 
the constant capital. So far as it is a question of the gen- 
eration of value, the constant capital is significant only for 
its value. It is immaterial for this question, whether a 
constant capital of, say, 1,500 p.st. represents 1,500 tons of 
iron at 1 p.st. each, or 500 tons of iron at 3 p.st. each. The 
quantity of the actual material, in which the value of the 
constant capital is incorporated, is immaterial for the ques- 
tion of the formation of value and the rate of profit. This 
rate varies inversely to the value of the constant capital, no 
matter what may be the proportion of the increase or de- 
crease of the value of constant capital to the mass of its ma- 
terial elements. 



Relation of Pro-fit to Surplus-Value. 6y 

It is different with the variable capital. ISTot its own value, 
not the labor incoriDorated in this capital, are of prime im- 
portance, bnt the fact that its o^^'n value implies the setting in 
motion of a grand total of labor whose quantity it does not 
express. This grand total of labor differs from the labor 
expressed in the value of the variable capital and paid by it 
in that it contains a certain amount of surplus-labor, which is 
so much greater, the smaller the value of the labor contained 
in the variable capital. Take it that a working day of 10 
hours is equal to 10 shillings. If the necessary labor, which 
pays for the wages, or makes good the variable capital, is 
worth 5 shillings, then the surplus-labor amounts to 5 hours, 
or the surplus-value to 5 shillings. If the necessary labor 
amounts to 4 hours and is worth 4 shillings, then the surplus- 
labor is 6 hours and the surplus-value 6 shillings. 

Hence, as soon as the value of the variable capital ceases 
to be an index of the amount of labor actually set in motion 
by it, as soon as the measure of this index is altered, the rate 
of surplus-value will vary inversely and at an inverse ratio. 

]^ow let us pass on and apply the previously found equa- 
tion of the rate of profit, p' = s' -J, to the various cases 
possible. We shall change the value of the individual factors 
of s' ^ one after another and ascertain the effect of these 
changes on the rate of profit. In this way we obtain a num- 
ber of different cases, which we may regard either as succes- 
sively altered determinants of one and the same capital, or as 
different capitals existing side by side and compared with 
one another, no matter whether they exist in different lines of 
industry or different countries. In cases where the concep- 
tion of some of our examples as successive conditions of the 
same capitals seems forced or impracticable, this objection is 
set aside by regarding them as illustrations of independent 
capitals. 

We now separate the product s' -^ into its two factors a' 
and -^. In the first place, we treat s' as a constant factor 
and analyze the effects of the possible variations of -J. After 
that we treat the fraction -J as constant and let s' go through 



68 Capitalist Production. 

its possible variations. Finally we treat all factors as vari- 
able magnitudes and thereby exhaust all cases from which 
rules concerning the rate of profit may be derived. 

I. s' constant^ -^ variable. 

We make a general formula for this case, which comprises 
a number of sub-cases. Take two capitals C and Ci, with 
their respective variable proportions v and Vj, with equal rates 
of surplus-value s", and the rates of profit p' and pi'. Then 
p' = s'-Jand p/-s'Ji. 

'Now let us make a proportion of C and Ci, and v and Vj, 
for instance let the value of the fraction §i = E, and that 
of ^ = e. Then Cj = EC, and Vj = ev. Substituting in 
the above equation these values for p^', C^ and Vi, we obtain 
Pi' = s' g^. Again, we may deduct a second formula from 
the above two equations, by transforming them into the equa- 
tion p' : Pi' = s' -J ; s' c^ = "5" : U^- Since the value of a 
fraction remains the same, if we multiply or divide its nu- 
merator or denominator by the same number, we may reduce 
—■ and p-, to percentages, that is to say we may make both C 
and Ci equal to 100. Then we have -J- = -j^ and ^ = S. 
We may then drop the denominators in the above proportion 
and say that p' : pi' =. v : v^. In other words, with any two 
capitals operating with the same rate of surplus-value the 
rates of profit are proportioned to one another as the variable 
capitals are to one another, calculated in percentages on 
their respective total capitals. 

These two formulae comprise all cases of variation of -J-, 

Before we analyze these various cases, we make another 
remark. Since C is the sum of c plus v, of the constant and 
variable capital, and since the rates of surplus-value and of 
profit are generally expressed in percentages, it is convenient 
to assume that the sum of c plus v is also equal to 100, that 
is to say, to express c and v in percentages. It is immaterial 
for the determination, not of the mass, but of the rate of 
profit, whether Ave say that a capital of 15,000, composed of 
12,000 of constant and 3,000 of variable capital, produces a 
surplus-value of 3,000, or whether we reduce this capital to per- 
centages. So we may say that 15,000 C = 12,000 c -f 3,000 



Relation of Profit to Surplus-Value. 69 

V + (3,000 s), or that 100 C = 80 c + 20 v + (20 s). In 
either case the rate of surplus-value, s', equals 100% and the 
rate of profit, p', 20%. 

The same is true in the comparison of two capitals. For 
instance, if we compare the foregoing capital with another, 
such as 12,000 C =.10,800 c + 1,200 v + (1,200 s), or 100 
C=, 90c + 10v+ (10 s). In the last case, s' is 100% 
and p', 10%. And its comparison with the foregoing capital 
is easier by percentages. 

On the other hand, if it is a question of changes taking 
place in the same capital, the expression by percentages is 
rarely convenient, because these peculiar alterations are al- 
most always obliterated thereby. If a capital, expressed in 
percentages of 80 c -f- 20 v -f- 20 s assumes the percentages 
of 90 c -[- 10 V -}- 10 s, we cannot tell whether the change in 
the composition of percentages is due to an absolute decrease 
of V or an absolute increase of c, or to both. In order to as- 
certain this, we 'must have the absolute magnitudes in figures. 
But in the analysis of the following individual cases, every- 
thing depends on the question of the way in which the varia- 
tions have been accomplished. Has 80 c + 20 v been changed 
into 90 c + 10 V by an increase of the constant capital with- 
out any change in the variable capital, for instance by chang- 
ing 12,000 c + 3,000 V into 27,000 c + 3,000 v ? Or has 
the same result been accomplished by leaving the constant 
capital untouched and reducing the variable capital, for in- 
stance by changing the above capital into 12,000 c -p 1,333^ v 
(corresponding to a percentage of 90 c -}- 10 v) ? Or have 
both of the original capitals been changed into 13,500 c + 
1,500 V (corresponding once more to percentages of 90 c -f~ 
10 v) ? It is precisely these cases which we shall have to an- 
alyze, and in so doing we must dispense with percentages, or 
at least employ them only in a minor degree. 

1. ^ and C constant, v variahle. 

If V changes its magnitude, then can remain unaltered 
only by a change in the opposite direction of c, the other com- 
ponent of C. If C consists originally of 80 c + 20 v, and if 

V is reduced to 10, then C can remain 100 only by an increase 



^o Capitalist Production. 

of c to 90 ; for 90 c + 10 v = 100. Generally speaking, if 
V is transformed into v ± d, into v increased or decreased by 
d, then c must be transformed into c + d, into c decreased or 
increased by the same amount^ into c varying in tbe opposite 
direction from v^ in order tbat the conditions of the present 
case be fulfilled. 

Again, if the rate of surplus-value, s', remains the same, 
while the variable capital, v, changes, then the mass of sur- 
plus-value must change, since s = sV, and since one of the 
factors of sV, namely v, is invested with a different value. 

The assumptions of the present case produce, aside from 
the original equation p' = s' -^, still another equation by the 
variation of v, namely pi' = s'' ^, in which v has become v^ 
and pi', the corresponding rate of profit, is to be sought. 

It is found by the corresponding proportion : 
_p':p/ = s'-J:s'^^.v:v,. 
That is to say, if the rate of surplus-value and the total capi- 
tal remain the same, then the original rate of profit is propor- 
tioned to the new rate of profit produced by a change in the 
variable capital as the original variable capital is to the 
changed variable capital. 

If the original capital was I) 15,000 C = 12,000 c + 
3,000 v-f (3,000 s), and if it is now II) 15,000 C = 
13,000 c-f 2,000 V + (2,000 s), then C is 15,000 and the 
rate of surplus-value 100% in either case, and the rate of 
profit of I), 20%, is proportioned to that of II), 13^%, as 
the variable capital of I), 3,000, is to the variable capital of 
II), 2,000, that is to say 20% : 13^% = 3,000 : 2,000. 

^ow, the variable capital may either increase or decrease. 
Take first an example in which it increases. Let a certain 
capital be constituted and operated as follows: I) 100 c + 
20 v-f 10 s. Then C equals 120, s' equals 50%, and p' 
equals 8^-%. ISTow let the variable capital increase to 30. 
In that case the constant capital must fall to 90, according 
to our assumption, which requires that the total should re- 
main unchanged at 120. The amount of surplus-value pro- 
duced will then rise from 10 to 15, the rate of surplus-value 



Relation of Profit to Surplus-Value. 71 

remaining constant at 50%. Our capital then is constituted 
as follows : 

II) 90c + 30v + 15s. C equals 120, s' equals 50%, 
and p', 121%. 

JSTow let us start out with the assumption that the wages 
remain unchanged. Then the other factors of the rate of 
surplus-value, namely the working day and the intensity of 
labor, must also be unchanged. Therefore the increase of v 
from 20 to 30 can signify only that more laborers are em- 
ployed. In that case the total product in values also increases 
by one-half, from 30 to 45, and is distributed, the same as 
before, to f for wages and ^ for surplus-value. Simulta- 
neously with the increase in the number of laborers the con- 
stant capital, the value of the means of production, has fallen 
from 100 to 90. We have before us, then, a case of de- 
creasing productivity of labor combined with a simultaneous 
decrease of constant capital. Is such a case economically 
possible ? 

In agriculture and industries engaged in the extraction of 
substances, where a decrease in the productivity of labor and, 
therefore, an increase in the number of laborers are readily 
understood, this process is accompanied on the basis and 
within the scope of capitalist production, by an increase of 
constant capital, not by a decrease. Even if our assumed 
decrease of c were due merely to a fall in prices, an indi- 
vidual capital would be able to accomplish the transition from 
I) to II) only under very exceptional circumstances. But in 
the case of two independent capitals invested in different 
countries, or in different lines of agriculture or extractive 
industry, it would not be strange if more laborers (and 
therefore more variable capital) were employed on less valu- 
able or fewer means of production in the case of one than in 
the other. 

But let us have done with the assumption that the wages 
remain the same, and let us explain the rise of the variable 
capital from 20 to 30 by a rise of wages by one-half. Then 
we have another case. The same number of laborers con- 
tinue to work with the same or slightly reduced means of 



J2 Capitalist Production. 

production. If the working day remains unchanged, say at 
10 hours, then the total product also remains unchanged. It 
was and remains 30. But this amount of 30 is now required 
to make good the consumed variable capital". The surplus- 
value would have disappeared. But we had assumed that the 
rate of surplus-value should remain constant at 50%, the 
same as in I). This is possible only if the working day is 
prolonged by one-half, increased to 15 hours. In that case 
20 laborers produce in 15 hours a total value of 45, and all 
conditions would be fulfilled. We should have 

II). 90 c -f 30 V + 15 s. C would be 120, s', 50% and 
p', 121%. 

Under these circumstances the 20 laborers do not require 
any more instruments, tools, machines, etc., than in the case 
of I). Only the raw materials or auxiliary substances would 
have to be increased by one-half. If there were a fall in the 
prices of these materials, then the transition from I) to II) 
under the conditions of our assumed case might very well be 
accomplished even by an individual capital. And the capi- 
talist would be somewhat compensated by increased profits 
for any loss incurred through the depreciation of his constant 
capital. 

IvTow let us assume that the variable capital were to be re- 
duced instead of increased. Then we have but to reverse 
our example. We have but to assume that II) is the orig- 
inal capital and to pass from II) to I). Then II), or 
90 c + 30 V + 15 s changes into I), or 100 c -f 20 v -f 10 s, 
and it is evident that this transposition does not alter any of 
the conditions which regulate the respective rates of profit 
and their mutual relations. 

If V falls from 30 to 20 because the number of laborers is 
reduced by one-third while the constant capital increases, then 
we have before us the normal case of modern industry, namely 
an increasing productivity of labor, an operation of a larger 
mass of means of production by fewer laborers. That this 
process is necessarily connected with a simultaneous fall of 
the rate of profit, will be demonstrated in the third part of 
this volume. 



Relation of Profit to Surphis-Valiie. 73 

On the other hand, if v falls from 30 to 20 because the 
same number of laborers are employed at lower wages, while 
the working day remains the same, then the total product in 
values would remain 30 v + 15 s, or 45. Since wages have 
fallen to 20, the surplus-value would rise to 25, the rate of 
surplus-value from 50% to 125%, contrary to our assump- 
tion. In order to comply with the conditions of our case, the 
surplus-value, with its rate at 50%, must fall to 10. The 
total product must, therefore, fall from 45 to 30, and this is 
possible only by a reduction of the working day by one-third. 
Then we have, the same as before, 100 c + 20 v +10 s. 
equals 120, s', 50%, and p', 8^%. 

It need hardly be mentioned that this reduction of the 
working time with a fall in wages would not occur in practice. 
But this is immaterial. The rate of profit is a function of 
several variable magnitudes, and if w^e wish to know in what 
manner these variable magnitudes influence the rate of profit, 
we must analyze the individual effect of each seriatim, re- 
gardless of whether such an isolated effect is practicable with 
one and the same capital or not. 

2) s' constant, v variable, C changed by the variation of v. 

This case differs from the preceding one only in degree. 
Instead of c decreasing or increasing by as much as v in- 
creases or decreases, c remains constant. Under the modern 
conditions of great industry and agriculture the variable cap- 
ital is but a relatively small part of the total capital. For 
this reason, the increase or decrease of the total capital, so far 
as either is due to variations of the variable capital, are like- 
wise relatively small. 

Let us start out again with a capital I) of 100 c + 20 v -f- 
10 s. C equals 120, s' 50%, and p' 8^%. This will then be 
transformed into II) 100 c + 30 v + 15 s, wdth C at 130, s' 
at 50%, and p' at 11 -3^%. The opposite case, in which the 
variable capital would decrease, would be symbolized by the 
transition from II) to I). 

The economic conditions would be essentially the same as 
in the preceding case, and therefore require no reiteration. 
The transition from I) to II) implies a decrease in the pro- 



74 Capitalist Production. 

ductivitj of labor by one-half. The assimilation of 100 c 
requires an increase of labor in II) bj one-half over that of 
I). This case may occur in agriculture.^ 

While in the preceding case the total capital remained con- 
stant, owing to the conversion of constant capital into vari- 
able, or vice versa, there is in this case a tie-up of additional 
capital, if the variable capital is increased, and a release of 
previously employed capital, if the variable capital decreases.. 

3) s^ and v constant^ c and C variable. 

In this case, the equation p' = s'' -J is changed into 
Pi' = s' ^. After eliminating the same factors on both sides, 
we have p^' : p' ^ C : Cj. In other words, if the rates of 
surplus-value are the same and the variable capitals equal, 
the rates of profit are inversely proportioned to the total cap- 
itals. 

Take it that we have three different capitals, or three dif- 
ferent conditions of the same capital, for instance 

I) 80 c -f 20 V + 20 s; C = 100, s' = 100%, p' = 20 % 

II) 100 c + 20 V + 20 s; C =120, s' = 100%, p' = 16f % 

III) 60 c + 20 V + 20 s ; C = 80, s' = 100%, p' = 25 % 

Then we obtain the proportions: 

20% : 16f % =^ 120 : 100, and 20% : 25% = 80 : 100. 

The general formula previously given for variations of 
-^ when s' remained constant was p^'' =. s' g^. ISTow it be- 
comes p' =, s'^. For since v remains unchanged, the fac- 
tor e, or ^, becomes equal to 1. 

Since s'v equals s, the mass of surplus-value, and since 
both s' and v remain constant, it follows that s is not affected 
by any variation of C. The mass of surplus-value is the 
same after the change that it was before. 

If c were to fall to zero, p' would be equal to s', that is 
to say, the rate of profit equal to the rate of surplus-value. 

The alteration of c may be due either to a mere change in 
the value of the material elements of constant capital, or 
to a change in the technical composition of the total capital, 

8 The manuscript has the following note at. this point: "Investigate later in 
what manner this case is connected wilh ground-rent." 



Relation of Profit to Sur phis-Value. 75 

that is to say a change in the productivity of labor in that 
line of industry. In the last named case, the increase in the 
productivity of social labor due to the development of in- 
dustry and agriculture on a large scale v^ould bring about 
a transition, in the above illustration, from III to I and 
from I to II. A quantity of labor paid with 20 and pro- 
ducing a value of 40 would first work up means of produc- 
tion valued at 60. With a further increase in the produc- 
tivity, and the same value, the means of production would be 
worked up to the amount of 80, and later on of 100. A re- 
version of this succession would imply a decrease in produc- 
tivity. The same quantity of labor would work up a smaller 
quantity of means of production, the business would be cut 
down. This may occur in agriculture, mining, etc. 

A saving in constant capital increases on the one hand the 
rate of profit, and on the other sets free some capital. It is, 
therefore, of great importance for the capitalist. We shall 
analyze this point later on, and likewise the influence of a 
change of prices of the elements of constant capital, particu- 
larly of raw materials. 

We see once more, by this illustration, that a variation of 
the constant capital uniformly affects the rate of profit, no 
matter whether this variation is due to an increase or de- 
crease of the material elements of c, or merely to a change in 
their value. 

4) s' constant, v, c, and C variable. 

In this case, the general formula indicated at the outset, 
namely p' =. s' g^, remains in force. It follows from this, 
assuming the rate of surplus-value to remain the same, that 

a) the rate of profit falls, if E is greater than e, that is 
to say, if the constant capital increases to such an extent that 
the total capital grows at a faster rate than the variable cap- 
ital. If a capital of 80 c + 20 v -f- 20 s is transformed so 
that it becomes 170 c + 30 v + 30 s, then s'' remains at 100%, 
but -^ falls from ywj to ^^, in spite of the fact that both 
V and C have augmented, and the rate of profit falls cor- 
respondingly from 20% to 15%. 

b) The rate of profit remains unchanged only in the case 



76 Capitalist Production. 

that e equals E, that is to saj^ if the fraction -^ retain the 
same value even if the fraction is apparently changed, in 
other words, if its numerator and denominator are multi- 
plied or divided by the same number. It is evident that the 
capital 80 c + 20 V + 20 s and the capital 160 c + 40 v + 
40 s have the same rate of profit, namely 20%, because s' 
remains at 100% and -^ represents the same value, whether 
we write it jVo o^ 2V0 • 

c) The rate of profit arises, Avhen e is greater than E, that 
is to say, when the variable capital grows at a faster rate 
than the total capital. If 80 c + 20 v -|- 20 s becomes 120 c 
+ 40 V 4" 40 s, then the rate of profit rises from 20% to 
25%, because s' has remained the same and -J has risen 
from Y^ to yVV, or from ^ to |. 

If the variation of v and C follows the same direction, we 
may look upon this change of mag-nitude up to a certain de- 
gree as though both of them varied in the same proportion, 
so that -J- would be regarded as unchanged to that extent. 
Beyond this point only one of them would then vary, and by 
this means we should reduce this complicated case to one of 
the preceding simpler ones. 

For instance, if 80 c + 20 v + 20 s becomes 100 c+ 30 v 
-\- 30 s, then the proportion of v to c, and also to C, remains 
the same up to the point of 100 c + 25 v + 25 s. Up to 
that point, the rate of profit remains likewise unchanged. 
We may then take our departure from lOOc^- 25v -}- 25 s. 
We find that later increased by 5 and became 30, so that C 
rose from 125 to 130. This is identical with the second 
case, that of the simple variation of v and the consequent 
variation of C. The rate of profit, which was originally 
20%, rises by this addition of 5 v to 23i^-g-%, always assum- 
ing the rate of surplus-value to remain the same. 

The same reduction to a simpler case can take place, when- 
ever V and C change their magnitudes in opposite directions. 
For instance, let us start out once more from 80 c + 20 v 
+ 20 s, and let this become 110 c + 10 v + 10 s. In that 
case, the rate of profit Avould have remained the same, if the 



Relation of Profit to Surplus-Value. '^y 

variation had proceeded to the point of 40 c + 10 v -j- 10 s. 
It would still have been 20%. By adding YO c to this in- 
termediate form, the rate of profit is lowered to 8J%. Thus 
we have reduced this case to a case of variation of one mag- 
nitude, namely of c. 

Simultaneous variations of v, c, and C, do not, then, offer 
any new points of analysis. For they may be reduced in 
the last resort to cases in which only one factor is variable. 

Even the only remaining case has actually been covered, 
namely that in which v and C are numerically unchanged, 
while their material elements experience a change of value, 
so that V stands for a changed quantity of assimilated labor 
and c for a changed quantity of assimilated means of pro- 
duction. 

For instance, in the capital 80 c -f- 20 v -[- 20 s, let 20 v 
indicate originally the wages of 20 laborers working 10 hours 
daily. Then let the wages of each laborer increase from 1 
to 1^. In that case 20 v pay only 16 laborers instead of 
20. IvTow, if 20 laborers produce in 200 working hours a 
value of 40j then 16 laborers will produce in 160 working 
hours a value of only 32. . After deducting 20 v for wages, 
only 12 would remain for surplus-value. The rate of sur- 
plus-value would have fallen from 100% to Q0%. But since 
our assumption is that the rate of surplus-value shall remain 
constant, the working day would have to be prolonged by one- 
quarter, from 10 hours to 12| hours. If 20 laborers, work- 
ing 10 hours daily, or 200 hours, produce a value of 40, then 
16 laborers, working 12^ hours daily, or 200 hours, will pro- 
duce the same value^ and the capital of 80 c -{- 20 v pro- 
duces the same surplus-value of 20. 

Vice versa, if wages fall to such an extent that 20 v in- 
dicates the wages of 30 laborers, then s' can remain unchanged 
only in the case that the working day is reduced from 10 to 
6| hours. For 20 X 10 = 30 X 6f = 200 working hours. 

We have discussed previously in these diverging assump- 
tions, to what extent c may express the same value in money, 
and yet represent different quantities of means of production 
corresponding to different conditions. In reality this case 



y8 Capitalist Production. 

will very rarely be practicable in its purely theoretical form. 

As for the change of value of the elements of c, by which 
their mass is increased or decreased, it touches neither the 
rate of surplus-value nor the rate of profit, so long as it does 
not imply a change of magnitude in v. 

We have now exliausted all possible cases of variation of 
V, e, and C in our equation. We have seen that the rate of 
profit may fall, risci, or remain unchanged, while the rate of 
surplus-value remains the same, for the least variation in the 
proportion of v to c, or to C, is sufficient to change the rate 
of profit. 

We have seen, furthermore, that there is everywhere a cer- 
tain limit in the variation of v where the constancy of s' 
becomes economically impossible. Since every one-sided varia- 
tion of c must also arrive at a certain limit where v can no 
longer remain unchanged, we find that every possible varia- 
tion of -^ has certain limits, beyond which s' must likewise 
become variable. In the variations of s', which we shall now 
discuss, this interaction of the different variable magnitudes 
of our equation will become still plainer. 

II. s^ variable. 

We obtain a general formula for the rates of profit with 
variable rates of surplus-value, no matter whether ~ re- 
mains constant or not, by converting the equation p' = 
s' -^ into p/ = s/ J^. Here p/, s/, Ci, and v^ indicate 
the changed values of p', s', C, and v. Then we have 
p' : Pi' =« s'-J : s/ ^. This may be manipulated into 

p' ='A XliX f^Xp'. 

1) s'' variable J -^ constant. 

In this case we have the equations p' = s' -^ and Pi' = 
s/ -^. In both of them -^ is equal. Therefore p" : p^' = 
s' : Si'. That is to say, the rates of profit of two capitals of 
the same composition are proportioned as the corresponding 
two rates of surplus-value. Since it is not a question, in the 
fraction -^, of the absolute magnitude of v and C, but only 
of their proportion to one another, this applies to all capitals 



Relation of Profit to Surplus-Value. _ 79 

of equal composition, whatever may be their absolute magni- 
tude. 

80 c + 20 V + 20 s ; C = 100, s' => 100%, p' = 20%. 
160 c + 40 V + 20 s; C = 200, s' = 50%, p' =, 10%. 

100% : 50% =20% : 10%. 
If the absolute magnitudes of v and C are the same in both 
cases, then the rates of profit are also proportioned to one an- 
other as the masses of surplus-value : p' : p^' = s'v : s^'v = 
s : s^. For instance : 

80 c + 20 V -I- 20 s; s' — 100%, p' = 20%. 
80c + 20v + 10 s; s'=: 50%, p'=,10%. 
20% : 10% = 100 X 20 : 50 X 20 = 20 s : 10 s. 
ISTow, it is evident that with capitals of equal absolute com- 
position, or equal percentages of composition, the rates of sur- 
plus-value can differ" only when either the wages, or the length 
of the working day, or the intensity of labor are different. 
Take the following three cases; 



I. 80 c -f 20 V + 10 s 

11. 80 c + 20 V + 20 s 

III. 80 c + 20 V + 40 s 



s'= 50%, p' = 10%. 
s'= 100%, p' = 20% 
s'=:200%, p' = 40%. 



In the case of I, the total product in values is 30, namely 
20 V -j- 10 s, in II it is 40^ in III it is 60. This may come 
about in three different ways. 

First, if the wages are different, so that 20 v expresses in 
every individual case a different number of laborers. Take it 
that capital I employs 15 laborers for 10 hours per day at a 
wage of 1^ p. St. and that these laborers produce a value of 30 
p.st, of which 20 p.st. make good the wages and 10 p.st. are 
surplus-value. If wages fall to 1 p.st., then 20 laborers may 
be employed for 10 hours, and they will produce a value of 40 
^ p.st., of which 20 p.st. make good wages and 20 p.st. are sur- 
plus-value. If wages fall still more, for instance to f p.st., 
then 30 laborers may be employed for 10 hours, and they will 
produce a value of 60 p.st., 40 p.st. of which will represent 
surplus-value after deducting 20 p.st. for wages. 

This case, in which the percentages of composition of the 
capital, the working day, the intensity of labor, are constant, 
while the rate of surplus-value varies on account of the varia- 



8o Capitalist Production. 

tion of wages, is the only one in which Eicardo's assumption 
is correct, to-wit, that " profits would be high or low, exactly 
in proportion as wages would be low or high." (Principles, 
chapter I, section III, page 18 of the " Works of D. Ei- 
cardo," edited by MacCuUoch, 1852.) 

Secondly, if the intensity of labor varies. In that case 
20 laborers produce with the same means of production in 10 
hours of daily labor 30 pieces of a certain commodity in I, 
40 pieces in II, and 60 pieces in III. Every piece repre- 
sents, aside from the value of the means of production in- 
corporated in it, a new value of 1 p.st. Since every 20 pieces 
make good the wages of 20 p.st,, there remain 10 pieces at 
10 p.st. for surplus-value in I, 20 pieces at 20 p.st. in II, and 
40 pieces at, 40 p.st. in III. 

Thirdly, the working day may vary in length. If 20 la- 
borers work with the same intensity for 9 hours in I, 12 hours 
in II, and IS hours in III, then their total products, 30 :40 : 
60 vary in the proportions 9 : 12 : 18. And since wages are 
20 in every case, the surplus-value is 10, or 20, or 40 re- 
spectively. 

An increase or decrease in wages, then, influences the rate 
of surplus-value, and, since -^ was assumed as constant, also 
the rate of profit, inversely, while an increase or decrease in 
the intensity of labor, a lengthening or shortening of the work- 
ing day, influence them in the same direction. 

2) s^ and v vandble, C constant. 

In this case the following proportion applies : p' : pi' = 

^ -i- ^1 "H ^^ ^ "^ • ^1 "^1 = s : Sp 

The rates of profit are proportioned to one another as the 
corresponding masses of surplus-value. 

A variation of the rate of surplus-value, while the variable 
capital remains constant, signifies a change in the magnitude 
and distribution of the product in values. A simultaneous 
variation of v and s' also implies always a change in the dis- 
tribution, but not always a change in the magnitude of the 
product in values. Three cases are possible. 

a) The variation of v and s' takes place in opposite direc- 
tions, but by the same amount, for instance : 



Relation of Profit to Surplus-Value. 8i 

80c + 20vH- 10 s; s' = 50%, p' == 10%. 

90c + 10v-i-20s; s' = 200%, p' = 20%. 
The product in values is equal in both cases, hence the quan- 
tity of labor performed likewise : 20 v -|- 10 s = 10 v + 
20 s = 30. The difference is only that in the first case 20 
are paid for wages and 10 remain for surplus-value, while in 
the second case wages are 10 and surplus-value 20. This is 
the only case in which the number of laborers, the intensity 
of labor, and the length of the working day remain unchanged, 
while V and s' vary. 

b) The variation of s' and v takes place in opposite direc- 
tions, but not by the same amount. In that case the varia- 
tion of either v or s' is the greater. 

I. 80 c -f 20 V + 20 s ; s' =. 100 %, p' = 20%. 
11. Y2c + 28v + 20s; s' = Tlf%, p' = 20%. 
III. 84c-f 16v-i-20s; s' = 125 %, p' = 20%. 
Capital I pays for a product in values amounting to 40 
with 20 V, II a value of 48 with 28, and III a value of 36 
with 16. Both the product in values and the wages have 
changed. But a change in tlie product in values means a 
change in the amount of labor performed, and this implies a 
•change either in the number of laborers, the hours of labor, 
or the intensity of labor, or in more than one of these. 

c) The variation of s' and v takes place in the same di- 
rection. In that case it intensifies the effect of either. 

90c + 10v + 10s; s' = 100%, p'=10%. 
80c + 20v + 30s; s' = 150%, p' = 30%. 
92 c+ 8v+ 6 s; s' = 75%, p' = 6%. 
In these cases the three products in value are also different 
namely 20, 50, and 14. And this difference in the magni- 
tude of the respective quantities of labor reduces itself once 
more to a difference in the number of laborers, the hours of 
labor, and the intensity of labor, or of several or all of these 
factors. 

3) s', V and C variable. 

This case offers no new points of view and is solved by the 
general formula given under II, in which s' is variable. 



82 Capitalist Production. 

The effect of a change in the magnitude of the rate of snr- 
plus-value on the rate of profit is summed up, according to 
the foregoing, by the following cases : 

1) p' increases or decreases in the same proportion as s', 
if -^ remains constant. 

80c + 20v + 20s; s' = 100%, p' = 20%. 

80c + 20v + 10s; s' = 50%, p' = 10%. 

100% :50% =20% :10%. 

2) p' rises or falls at a gTeater rate than s', if -J moves 
in the same direction as s', that is to say, if -^ increases or 
decreases when s'' increases or decreases. 

80c + 20v + 10s; s' = 50 %, p' = 10%. 

70c + 30v + 20s; s' = 66|%, p' = 20%. 

50% :66|% < 10% :20%. 

3) p'' rises or falls at a smaller rate than s'', if -^ changes 
in the opposite direction from s', but at a smaller rate. 

80c + 20v+10s; s' = 50%, p' = 10%. 

90c+10v + 15s; s' = 150%, p' = 15%. 

50% : 150% > 10% : 15%. 

4) p' rises, while s' falls, or falls while s' rises, if 
changes in the opposite direction and at a greater rate than s'. 

80 c + 20 V + 20 s ; s' = 100%, p' = 20%. 
90c + 10v + 15s; s'=150%, p' = 15%. 
s' has risen from 100% to 150%, p' has fallen from 20% 
to 15%. 

5) Finally, p' remains constant, while s' rises or falls, if 
"c changes in the opposite direction, but at exactly the same 
rate, as s'. 

It is only this last case which requires some further expla- 
nation. We observed in the variations of -J that the same 
rate of surplus-value may be an expression of different rates 
of profit. We see now that the same rate of profit may be 
based on different rates of surplus-value. So long as s'' is 
constant, any change in the proportion of v to C is sufficient 
to call forth a difference in the rate of profit. But if s'' varies 
in magnitude, it requires a corresponding inverse change of -^ 
in order that the rate of profit may remain the same. This 
happens but exceptionally in the case of one and the same 



Relation of Profit to Surplus-Value. 83 

capital, or of two capitals in one and the same country. Take 
it that we have a capital 80 c + 20 v + 20 s ; C = 100, s' =. 
100%, p' = 20%. And let us assume that wages fall to such 
an extent that the same number of laborers may be bought for 
16 V instead of 20 v. Then we have released 4 v, and other 
circumstances remaining the same, our capital will have the 
composition 80 c +16 v + 24 s ; C = 96, s' = 150%, p' = 
25%. In order that p' may be 20%, as before, the total cap- 
ital would have to increase to 120, the constant capital, there- 
fore, to 104, thus, 104 c -f 16 V + 24 s; C = 120, s' = 
150%, p'=:20%. 

This would be possible only if the fall in wages were ac- 
companied by a change in the productivity of labor, which 
would require such a change in the composition of capital. 
Or, it might be that the money-value of the constant capital 
w^ould increase from 80 to 104. In short, it would require 
an accidental coincidence of conditions such as occurs very 
rarely. In fact, a variation of s' which does not imply a 
simultaneous variation of v, and thus of -J is practicable only 
under very definite conditions. It may happen in lines of 
industry in which only fixed capital and labor are employed, 
while the materials of labor are supplied by nature. 

But this is not so in the comparison of the rates of profit 
of two different countries. Tor in that case the same rate of 
profit is based as a rule on different rates of surplus-value. 

It follows from all of these five cases that a rising rate of 
profit may be the companion of a falling or rising rate of sur- 
plus-value ; a falling rate of profit go hand in hand with a ris- 
ing or falling rate of surplus-value ; a constant rate of profit ex- 
ist by the side of a rising or falling rate of surplus-value. And 
we have seen under ~^o. I that a rising, falling, or constant 
rate of profit may be based on a constant rate of surplus-value. 



The rate of profit, then, is determined by two main factors, 
namely the rate of surplus-value and the composition of the 
value of capital. The effects of these two factors may be 
briefly summed up in the manner stated hereafter. We may, 
in this summing up, express the composition of capital in per- 



84 Capitalist Production. 

centages, for it is immaterial for this point which one of the 
two portions of capital is the cause of variation. 

The rates of profits of two different capitals, or of one 
and the same capital in two different successi.ve conditions, 
are equal 

1) If the percentages of composition of capital are the 
same and the rates of surplus-value equal. 

2) If the percentages of composition are not the same, and 
the rates of surplus-value unequal, provided that the products 
of the multiplication of the rates of surplus-value by the per- 
centages of the variable portions of capital (s' and v) are the 
same, that is to say, the masses of surplus-value (s = sV) 
calculated in percentages on the total capital; in other words, 
if the factors s,^ and v are inversely proportioned to one an- 
other in both cases. 

They are unequal 

1) If the percentages of composition are equal and the 
rates of surplus-value unequal, in which case the rates of 
profit are proportioned as the rates of surplus-value. 

2) If the rates of profit are the same and the percentages 
of composition unequal, in which case the rates of profit are 
proportioned as the variable portions of capital. 

3) If the rates of profit are unequal and the percentages 
of composition not the same, in which case the rates of profit 
are proportioned as the products sV, that is to say, as the 
masses of sui*plus-value calculated in jDercentages on the total 
capital.^" 

" The manuscript contains also very detailed calculations of the difference be- 
tween the rate of surplus-value and the rate of profit (s' — p') ; these show very- 
interesting peculiarities and their movement indicates the cases in which the two 
rates draw ^apart or approach one another. These movements may be represented 
by curves. I do not reproduce this material, because it is of less importance for 
the immediate purposes of this work. It is enough to call the attention of those 
readers to this fact who wish to follow up this line of inquiry. — F. E. 



Effect of Turn-Over on Rate of Profit. 



CHAPTER IV. 

THE EFFECT OF THE TUEN-OVEE OIST THE BATE OF PEOFIT. 

The effect of the turn-over on the production of surplus- 
value, and consequently of profit, has been discussed in vol- 
ume II. It may be briefly summarized in the statement that 
the entire capital cannot be employed all at once in produc- 
tion, because the turn-over requires a certain lapse of time; 
for this reason a portion of the capital is always lying fallow, 
either in the form of money-capital, of a supply of raw ma- 
terials, of finished but still unsold commodity-capital, or of 
outstanding bills not yet due; hence the capital active in the 
production and appropriation of surplus-value is always short 
by this amount, and the production and appropriation of sur- 
plus-value is curtailed to that extent. The shorter the period 
of turn-over, the smaller is the fallow portion of capital as 
compared with the w^hole, and the larger will be the appro- 
priated surplus-value, other conditions remaining the same. 

It has been shown explicitly in the second volume to what 
extent the mass of the produced surplus-value is augmented 
by the reduction of the period of turn-over, or of one of its 
two sections, the time of production and the time of circula- 
tion. But it is evident that any such reduction increases the 
rate of profit, since this rate expresses but the mass of surplus- 
value produced in proportion to the total capital employed in 
production. Whatever has been said in the second part of the 
second volume in regard to surplus-value, applies just as well 
to profit and the rate of profit, and requires no repetition at 
this place. We shall touch only upon a few of the principal 
points. 

A reduction of the time of production is mainly due to an 
increase in the productivity of labor, a thing commonly called 
the progress of industry. If this does not require at once a 



86 Capitalist Production. 

considerable extra-outlay of capital for expensive macliin- 
ery, etc., and tlius a reduction of the rate of profit, which is 
calculated on the total capital, this rate must rise. And this 
is decidedly the case with many of the latest improvements 
in metallurgy and chemical industry. The recently discov- 
ered methods of making iron and steel, such as the processes 
of Bessemer, Siemens, Gilchrist-Thomas, etc., shorten for- 
merly tedious processes to a minimum with relatively small 
expense. The making of alizarin, a red coloring substance 
extracted from coal-tar, produces in a few weeks, by the help 
of already existing installations for the manufacture of coal- 
tar colors, the same results which formerly required years. 
It took at least one year to mature the plants from Avhich this 
coloring matter was formerly extracted, and it was customary 
to let them grow a few years before the roots were used for 
the purpose of making color. 

The time of circulation is reduced principally by improved 
means of communication. In this respect the last fifty years 
have brought about a revolution, which can be compared only 
with the industrial revolution of the last half of the eighteenth 
century. On land the macademized road has been displaced 
by the railroad, on sea the slow and irregular sailing vessel 
by the rapid and regular steamboat line, and the entire globe 
has been circled by telegraph wires. The Suez Canal has 
fully opened Eastern Asia and Australia for steamer traffic. 
The time of circulation of a shipment of commodities to East- 
ern Asia was at least twelve months as late as 1847, and it 
has now been reduced to almost as many weeks. The two 
large centers of commercial crises, 1825-1857, America and 
India, have been brought from 70 to 90 per cent, nearer to 
Europe by this revolution of the means of communication, 
and have thereby lost a good deal of their explosive nature. 
The period of turn-over of the world's commerce has been re- 
duced to the same extent, and the productive capacity of the 
capital engaged in it has been doubled or trebled. It goes 
without saying that this has not been without effect on the rate 
of profit. 

In order to view the effect of the turn-over of the total 



Effect of Turn-Over on Rate of Profit. 87 

capital on tlie rate of profit in its purest form, it is necessary 
to assume all other conditions of two compared capitals as 
equal. Aside from the rate of surplus-value and the working 
day it is especially the percentages of composition which w^e 
assume to be the same. I^ow let us select a capital A com- 
posed of 80 c + 20 V = 100 C. Let this have a rate of sur- 
plus-value of 100%, and let it be turned over twice per year. 

The annual product is then 160 c + 40 v -|- 40 s. But for 
the purpose of ascertaining the rate of profit we do not cal- 
culate the 40 s on the tumed-over capital-value of 200. We 
calculate it on the advanced capital of 100, and we obtain thus 
a rate of profit of 40%. 

ITow let us compare this with a capital B composed of 
160 c + 40 V = 200 C, which has the same rate of surplus- 
value, 100%, but which is turned over only once a year. 

The annual product of this capital is the same as that of 
A, namely 160 c + 40 v -|- 40 s. But the 40 s in this case 
are to be calculated on an advance of capital amounting to 
200, so that the rate of profit of B is only 20%, or one-half 
that of A. 

We find, then, that with capitals with equal percentages of 
composition, equal rates of surplus-value, and equal working 
days, the rates of profit are proportioned inversely as their 
periods of turn-over. If either the composition, or the rates 
of surplus-value, or the working day, or the wages, are un- 
equal in the two compared cases, then other differences are 
naturally produced in the rates of profit. But these are not 
directly dependent on the turn-over, and do not concern us at 
this point. They have already been discussed in chapter III. 

The direct effect of a reduced period of turn-over on the 
production of surplus-value, and consequently of profit, con- 
sists in the increased effectiveness given thereby to the varia- 
ble portion of capital, as shown in volume II, chapter XVI, 
The Turn-Over of Variable Capital. It was demonstrated in 
that chapter that a variable capital of 500, which is turned 
over ten times per year, produces during this time as much 
surplus-value as a variable capital of 5,000 with the same 



88 Capitalist Production. 

rate of surplus-value and the same wages, turned over once a 
year. 

Take a capital (I) consisting of 10,000 fixed capital, witli 
an annual wear and tear of 10%, or 1,000, furthermore of 
500 circulating constant and 500 variable capital. Let the 
rate of surplus-value be 100%, and let the variable capital be 
turned over ten times per year. For the sake of simplicity 
we assume in all following examples that the circulating con- 
stant capital is turned over in the same time as the variable, 
which is generally the case in practice. Then the product of 
one such period of turn-over will be 

100 c (wear) -f 500 c + 500 v + 500 s =, 1,600. 
And the product of one entire year, with ten such turn-overs, 
will be 

1,000 c (wear) + 5,000 c + 5,000 v + 5,000 s =^ 16,000. 
Then C is 11,000, s is 5,000, p' is^%%, or 45 3^%. 

ISTow let us take another capital (II), composed of 9,000 
fixed capital, with an annual wear and tear of 1,000, circu- 
lating constant capital 1,000, variable capital 1,000, rate of 
surplus-value 100%, number of annual turn-overs of variable 
capital 5. Then the product of each one of these turn-overs 
of the variable capital will be 

200 c (wear) -f 1,000 c + 1,000 v + 1,000 s = 3,200. 
And the annual product (of all five turn-overs) will be 

1,000 c (wear) + 5,000 c + 5,000 v -f 5,000 s = 16,000. 
Then C is 11,000, s is 5,000, and p' is^^Vo, or 4:6 j\ %. 

Take furthermore a third capital (III) with no fixed capi- 
tal, 6,000 circulating constant capital, and 5,000 variable cap- 
ital. Let the rate of surplus-value be 100%, and let there be 
one turn-over per year. Then the total product of one year is 

6,000 c + 5,000 V + 5,000 s = 16,000. 
C is 11,000, s is 5,000, and p' is^^^V, or 4:6^%. 

In other words, we have in all three of these cases the same 
annual mass of surplus-value, namely 5,000, and since the 
total capital is likewise the same in all three cases, namely 
11,000, the rate of profit is also the same, namely 4:6 yt%- 

But now let us assume that capital (I) has only 5 instead 



Eifect of Turn-Over on Rate of Profit. 89 

of 10 turn-overs of its variable capital per year. In that 
case the outcome is different. The product of one turn-over 
is then 200 c (wear) + 500 c + 500 v + 500 s = 1,700. 
And the product of one year is 

1,000 c (wear) + 2,500 c + 2,500 v + 2,500 s =, 8,500. 
C is 11,000, s is 2,500, p' is yVoVo. or 22y\%. The rate of 
profit has fallen by one-half, because the time of turn-over has 
been doubled. 

The amount of surplus-value appropriated during one year 
is therefore equal to the mass of surplus^value appropriated 
during one turn-over of the variable capital multiplied by the 
number of such turn-overs per year. If we call the surplus- 
value, or profit, appropriated during one year S, the surplus- 
value appropriated during one period of turn-over of the vari- 
able capital s, the number of turn-overs of the variable capi- 
tal in one year n, then S = sn, and the annual rate of sur- 
plus-value S'' = s''n, as demonstrated in Volume II, chapter 
XYI, I. 

It is understood that the formula p' = s' -^ = s' ^ is cor- 
rect only so long as the v of the numerator is the same as that 
of the denominator. In the denominator v stands for the en- 
tire portion of the total capital used on an average as variable 
capital for the payment of wages. In the numerator, v is de- 
termined in the first place by the fact that a certain amount 
of surplus-value s is produced and appropriated by it. The 
proportion of this surplus-value to the variable capital, -^, 
constitutes the rate of surplus-value. It is only in this way 
that the formula p' = ^ is transformed into p' = s' ^. 
ISTow the V of the numerator is more definitely described by 
stating that it must be equal to the v of the denominator, that 
is to say equal to the entire variable capital of C. In other 
words, the equation p' = -^ can be transformed into the equa- 
tion p' = s' ^ only in the case that s stands for the surplus- 
value produced in one turn-over of the variable capital. If s 
stands for only a portion of this surplus-value, then s = sV 
is still correct, but this v is then smaller than the v in C = 
c + V, because less than the entire variable capital has been 



Qo Capitalist Production. 

employed in tlie payment of wages. On the other hand, if 
s stands for more than the surplus-value of one turn-over of 
V, then a portion of this v, or perhaps the whole, serves twice, 
namely in the first and in the second turn-over, and even- 
tually it may serve in the subsequent turn-overs. The v 
which produces the surplus-value, and which represents the 
sum of all paid wages, is then greater than the v in c -j- v 
and the calculation becomes wrong. 

In order that the formula for the annual rate of profit may 
be exact, we must -substitute the annual rate of surplus-value 
for the simple rate of surplus-value, we must substitute S' or 
s'n for s'. In other words, we must multiply the rate of 
surplus-value, s', or, what amounts to the same, the variable 
capital V contained in C, with n, the number of turn-overs of 
this variable capital in one year. Thus we obtain p' = 
s'n ■^, which is the formula for the calculation of the annual 
rate of profit. 

In most cases the capitalist himself does not know the 
amount of variable capital invested in his business. We have 
seen in chapter VIII of volume II, and shall see further along, 
that the only distinction which forces itself upon the capi- 
talist within his capital is that of fixed and circulating capi- 
tal. From the cash-box containing the money-part of the cir- 
culating capital in his hands, so far as it is not deposited in a 
bank, he takes the money to pay wages, and from the same 
cash-box he takes the money for raw and auxiliary materials. 
And he credits both expenditures to the same cash account. 
And even if he should keep a separate account for wages, it 
would show at the end of the year the amounts paid out for 
wages, that is vn, but not the variable capital v itself. In 
order to ascertain this, he would have to make a special cal- 
culation, of which we propose to give an illustration. 

We select for this purpose the cotton spinnery of 10,000 
mule spindles described in volume I. We assume that the 
data there given for one week of April, 1871, are in force 
during the whole year. The fixed capital incorporated in the 
machinery was valued at 10,000 p.st. The circulating capi- 
tal was not given. We assume it to have been 2,500 p.st. 



Effect of Turn-Over on Rate of Profit. 91 

This is a rather high estimate, but it is justified by the as- 
sumption, which we must always make in this discussion, that 
no credit was in force, in other words, no permanent or tem- 
porary employment of other people's capital. The value of 
the weekly product was composed of 20 p.st. for wear of ma- 
chinery, 358 p.st. of circulating constant capital (rent 6 p.st., 
cotton 342 p.st., coal, gas, oil, 10 p.st.), 52 p.st. of variable 
capital paid out for wages, and 80 p.st. of surplus-value. The 
formula was, therefore 

20 c (wear) + 358 c + 52 v + 80 s =. 510. 

The weekly advance of circulating capital consisted there- 
fore of 358 c -\- 52 Y = 410, and its percentages of composi- 
tion were 87.3 c -|- 12. Y v. Calculating the entire circulating 
capital of 2,500 p.st., on this basis, we obtain 2,182 p.st. of 
constant and 318 p.st. of variable capital. Since the total ex- 
penditure for wages in one year was 52 times 52 p.st., or 
2,Y04 p.st., it follows that the variable capital of 318 p.st. was 
turned over almost exactly 8-| times in one year. The rate of 
surplus-value was ff, or 153 y^%. We calculate the rate of 
profit from these elements by inserting the above values in the 
formula p'' =. s'n-^. Since s'' is 153-^, n is 8^, v is 318, and 
C is 12,500, we have 

p' = 153H X 8i X iSo = 33.2Y%. 

We test this result by means of the simple formula p' =, •^. 
The total surplus-value or profit, of one year amounts to 52 
times 80 p.st., or 4,160 p.st. Dividing this by the total capi- 
tal of 12,500, we obtain 33.28%, or almost the identical re- 
sult. This is an abnormally high rate of profit, due to the 
extraordinarily favorable conditions of the moment (very low 
prices of cotton and very high prices of yam). In reality 
this rate was certainly not maintained throughout the year. 

The term s'n in the formula p' = s'n -J- stands for the same 
thing which was called the annual rate of surplus-value in vol- 
ume II. In the above case it is 153-5-|-% multiplied by 8|, 
or in exact figures l,d07-^%. A certain brave soul was 
shocked to the point of speechlessness over the abnormity of 
an annual rate of profit of 1,000%, which had been used as 



92 , Capitalist Production. 

an illustration in that volume. Perhaps he will now settle 
down peacefully and contemplate this annual rate of surplus- 
value of more than 1,300% taken from the practical life of 
Manchester. In times of greatest prosperity, such as we have 
not seen for a long time, a similar rate is by no means rare. 

By the way, this is an illustration of the actual composi- 
tion of capital in modern great industry. The total capital 
is divided into 12,182 p.st. of constant and 318 p.st. of vari- 
able capital, a total of 12,500 p.st. In percentages this is 
97^ c + 2^ V = 100 C. Only one-fortieth of the total capital 
serves for the payment of wages, but it is turned over eight 
times during the year. 

Since very few capitalists take the trouble of making simi- 
lar calculations with reference to their own business, the sci- 
ence of statistics is almost completely silent regarding the 
proportion of the constant portion of the total social capital 
to its variable portion. Only the American Census gives what 
is possible under modem conditions, namely the amount of 
wages paid in each line of business and the profits realized. 
These data are, of course, very doubtful, because they are 
based on uncontrollable statements of the capitalists, but they 
are nevertheless very valuable, and the only records available 
on this subject. In Europe we are far too delicate to expect 
such revelations from our great capitalists. — F. E.] 



CHAPTEE V. 



ECONOMIES IN THE EMPLOYMENT OF CONSTANT CAPITAL. 

I. General Economies. 

The increase of absolute surplus-value, or the prolongation 
of surplus-labor and thus of the working day, while the vari- 
able capital remains the same and employs the same number 
of laborers at the same nominal wages, no matter whether 
overtime is paid for or not, reduces relatively the value of 
the constant capital as com]3ared to the total and the varia- 



• Economies in Employment of Constant Capital. 93 

ble capital, and thereby increases the rate of profit even 
aside from the growth and mass of surplus-value and a possibly- 
rising rate of surplus-value. The volume of the fixed portion 
of constant capital, such as factory buildings, machinery, etc., 
remains the same, no matter whether they serve for 16 or for 
12 hours in the labor-process. A prolongation of the working 
day does not require any new expenditures for this most ex- 
pensive portion of the constant capital. Furthermore, the 
value of the fixed capital is thereby reproduced in a smaller 
number of periods of turn-over, so that the time for which it 
must be advanced in order to make a certain profit is abbre- 
viated. A prolongation of the working day therefore increases 
the profit, even if overtime is paid, or even if it is paid bet- 
ter, up to a certain limit, than the normal hours of labor. 
The ever more pressing necessity for the increase of fixed 
capital in modern industry was therefore one of the main 
reasons which induced profit-loving capitalists to prolong the 
working day.-^^ 

The same conditions do not obtain if the working day is 
constant. In that case it is necessary either to increase the 
number of laborers and with them to a certain extent the mass 
of fixed capital (buildings, machinery, etc.), in order to ex- 
ploit a greater quantity of labor (for we leave aside the ques- 
tion of deductions from wages or depression of wages below 
their normal level), or, if the intensity of labor and the pro- 
ductivity of labor are to be augmented and more relative sur- 
plus-value produced, the quantity of the circulating portion 
of constant capital increases in those lines which use raw ma- 
terials, since more raw material is worked up within a certain 
time. And in the second place, the mass of machinery set in 
motion by the same number of laborers also increases, in other 
words, both portions of constant capital increase. An in- 
crease in surplus-value, then, is accompanied by a growth of 
the constant capital, the growing exploitation of labor goes 
hand in hand with a heightened expenditure of the means of 

" Since in all factories a very large amount of fixed capital is invested in 
buildings and machinery, the gains will be so much larger the greater the number 
of hours during which this machinery can be kept employed." (Reports of Fac- 
tory Inspectors, October 31, 1858, p. 8.) 



94 Capitalist Production. 

production by 'vvliich labor is exploited, in other words, a 
greater investment of capital. The rate of profit is therefore 
reduced on one side while it increases on the other. 

Quite a number of running expenses remain almost or en- 
tirely the same, whether the working day is long or short. 
The cost of supervision is smaller for 500 working men during 
18 working hours than for 750 working men during 12 work- 
ing hours. " The running expenditures of a factory at ten 
hours of labor are almost as high as at twelve hours." (Report 
of Factory Inspectors, October, 1848, page 37.) State and mu- 
nicipal taxes, fire insurance, wages of various permanent em- 
ployes, depreciation of machinery, and various other expenses 
of a factory, run on just the same, whether- the working time 
is long or short. To the extent that production decreases, 
these expenses rise as compared to the profit. (Reports of 
Factory Inspectors, October, 1862, page 19.) 

The period in which the value of machinery and of other 
components of fixed capital is reproduced is practically de- 
termined, not by the mere duration of time, but by the dura- 
tion of the entire labor-process during which it serves 
and wears out. If the laborers must work 18 hours instead of 
12, it makes a difference of three days per week, so that one 
week is stretched into one and a half, and two years into three. 
If this overtime is not paid for, then the laborers supply the 
capitalists not only with the normal surplusdabor without re- 
ceiving an equivalent, but also give one week out of every 
three, and one year out of every three, for nothing. In this 
way the reproduction of the value of the machinery is speeded 
up by 50% and accomplished in two-thirds of the time which 
would be ordinarily required. 

We start in this analj^sis, and in that of the fluctuations of 
the prices of raw materials (chapter VI), from the assump- 
tion that the mass and rate of surplus-value are given quan- 
tities, in order to avoid useless complications. 

We have already shown in our presentation of co-operation, 
of division of labor and machinery, that economies in the con- 
ditions of production, such as are found in production on a 
large scale, are mainly due to the fact that these conditions 



Economies in Employment of Constant Capital. 95 

are social ones growing out of the combination of labor-proc- 
esses. The means of production are worked up by the aggre- 
gate laborer, a co-operation of many laborers on an immense 
scale, instead of by laborers operating in a disconnected way 
or co-operating at best on a small scale. In a large factory 
with one or two central motors the cost of these motors does 
not increase at the same rate as their horse-powers and their 
resulting extension of activity. The cost of transmission of 
power does not gTow at the same rate as the number of work- 
ing machines set in motion by it. The frame of any indi- 
vidual machine does not become dearer at the same rate as 
the number of tools which it employs as its organs. And so 
forth. The concentration of means of production furthermore 
saves buildings of various sorts, not only for actual working 
rooms, but also for storage sheds, etc. It is the same with 
expenses for fuel, light, etc. Other conditions of production 
remain the same, whether used by many or by few. 

This entire line of economies arising from the concentra- 
tion of means of production and their use on a large scale has 
for its fundamental basis the accumulation and co-operation 
of working people, the social combination of labor. Hence 
it has its source quite as much in the social nature of labor as 
the surplus-value considered individually has its source in 
the surplus-labor of the individual laborer. Even the con- 
tinual improvements possible and necessary in this line are due 
solely to the social experiences and observations made in pro- 
duction on a large scale through the combination of social 
labor. 

The same is true of the second great branch of economies 
in the conditions of production. We refer to the reconversion 
of the excrements of production, the so-called offal, into new 
elements of production, either of the same, or of some other 
line of industry ; the processes by which these SQ-called excre- 
ments are thrown back into the cycle of production and con- 
sequently of consumption, whether productive or individual. 
This line of economies, which we shall examine more closely 
later on, is likewise the result of social labor on a large scale. 
It is the abundance of these excrements due to large scale pro- 



q6 Capitalist Production. 

duction which renders them available for commerce and turns 
them into new elements of production. It is only as excre- 
ments of combined production on a large scale that they be- 
come valuable for the productive process as bearers of new 
exchange-values. These excrements, aside from the services 
which they perform as new elements of production, reduce the 
cost of raw material to the extent that they are saleable. For 
a normal loss is always calculated as a part of the cost of raw 
material, namely the quantity ordinarily wasted in its con- 
sumption. The reduction of the cost of this portion of con- 
stant capital increases to that extent the rate of profit, assum- 
ing the amount of the variable capital and the rate of surplus- 
value to be given quantities. 

If the surplus-value is given, then the rate of profit can be 
increased only by a reduction of the value of the constant cap- 
ital required for the production of commodities. To the ex- 
tent that the constant capital enters into the production of 
commodities, it is not its exchange-value, but its use-value, 
which is taken into consideration. The quantity of labor 
which the flax can absorb in a spinnery does not depend on 
its exchange-value, but on its quantity, assuming the degree 
of productivity of labor, that is to say, the stage of technical 
development, to be given. In like manner the assistance ren- 
dered by a machine to, say, three laborers does not depend on 
its exchange-value, but on its use-value as a machine. In one 
stage of technical development a bad machine may be expen- 
sive, in another a good machine may be cheap. 

The increased profit gathered by a capitalist through the 
cheapening of such things as cotton, spinning machinery, etc., 
is the result of a heightened productivity of labor. Of course, 
this improvement was not introduced in the spinnery, but in 
the cultivation of cotton and the building of machinery. 
There it required a smaller expense for the fundamentals of 
production in order to materialize a certain quantity of labor 
and secure possession of a certain amount of surplus-labor. 
This means a reduction of the expense required for the appro- 
priation of a certain quantity of surplus-labor. 

We mentioned in the foregoing the savings realized in the 



Economies in Employment of Constant Capital. 97 

process of production by the co-operative use of the means of 
production by socially combined laborers. Other economies, 
resulting in the expenditure of constant capital from the 
shortening of the time of circulation (a result brought about 
largely by the development of the means of communication) 
will be discussed later on. At this point we shall mention the 
economies due to progressive improvements of machinery, 
namely 1) of its substance, such as iron for wood; 2) the 
cheapening of machinery by the improvement of methods of 
manufacture, so that the value of the fixed portion of constant 
capital, while continually increasing with the development of 
labor on a large scale, does not grow at the same rate; ^^3) 
the special improvements enabling the existing machinery to 
work more cheaply and effectively, for instance, improvements 
of steam boilers, etc., which will be further discussed later on ; 
4) the reduction of waste through better machinery. 

Whatever reduces the wear of machinery, and of the fixed 
capital in general, for any given period of production, cheapens 
not only the individual commodity, seeing that every indi- 
vidual commodity reproduces in its price its share of this wear 
and tear, but reduces also the aliquot portion of the invested 
capital for this period. Repair work, etc., to the extent that 
it becomes necessary, is figured in with the original cost of the 
machinery. A reduction of the expense for repairs, due to a 
greater durability of the machinery, reduces the price of this 
machinery correspondingly. 

It may be said also of these economies, at least of most of 
them, that they are possible only through the combination of 
labor and are often not realized until production is carried 
forward on a still larger scale, so that they are due to an even 
greater combination of laborers in the direct process of pro- 
duction. 

On the other hand, the development of the productive power 
of labor in any one line of production, for instance in the 
production of iron, coal, machinery, buildings, etc., which may 
be in part connected with improvements on the field of in- 
tellectual production, especially in natural science and its 

^^ See Ure on the progress in factory construction. 
G 



98 Capitalist Production. 

practical application, appears to be the premise for a reduc- 
tion of the value, and consequently of the cost, of means of 
production in other lines of industry, for instance in the tex- 
tile business or in agriculture. This follows naturally from 
the fact that a commodity, which issues as a product from a 
certain line of production, enters into another as a means of 
production. Its dearness or cheapness depends on the pro- 
ductivity of labor in that line of production from which it 
issues as a product. Thus it is at the same time a basic con- 
dition, not only for the cheapening of commodities into whose 
production it enters as a means of production, but also for 
the reduction of the value of constant capital, whose element 
it becomes, and thereby for the increase of the rate of profit. 

The characteristic feature of this kind of economies in the 
constant capital due to the progressive development of indus- 
try is that the rise in the rate of profit in one line of industry 
is the result of the increase of the productive power of labor 
in another. That which the capitalist appropriates in this 
case is once more a gain which is the product of social labor, 
although not a product of the laborers directly exploited by 
him. Such a development of the productive power is traceable 
in the last instance to the social nature of the labor engaged 
in production; to the division of labor in society; to the de- 
velopment of intellectual labor, especially of the natural sci- 
ences. The capitalist thus appropriates the advantages of the 
entire system of the division of social labor. It is the develop- 
ment of the productive power of labor in its exterior depart- 
ment, in that department which supplies it with means of 
production, which relatively lowers the value of the con- 
stant capital employed by the capitalist and consequently 
raises the rate of profit. 

Another raise in the rate of profit is produced, not by econ- 
omies in the labor creating the constant capital, but by econo- 
mies in the operation of this capital itself. On one hand, the 
concentration of laborers, and their co-operation on a large 
scale, saves constant capital. The same buildings, appliances 
for fuel and light, etc., cost relatively less for large scale than 
for small scale production. The same is true of power and 



Economies in Employment of Constant Capital. 99 

working machinery. Althongh their absolute value increases, 
it falls relatively in comparison to the growing extension of 
production and the magnitude of the variable capital, or to 
the mass of labor-power set in motion. The economy realized 
by a certain capital within its own line of production is first 
and foremost' an economy in labor, that is to ffay, a reduction 
of the paid labor of its own laborers. The previously men- 
tioned economy is distinguished from this one by the fact that 
it accomplished the greatest possible appropriation of the un- 
paid labor in other lines in the most economical way, that is 
to say, with as little expense as a certain scale of production 
will permit. To the extent that this economy does not rest 
on the previously mentioned exploitation of the productivity 
of the social labor employed in the production of constant cap- 
tal, or in an economy arising from the operation of the con- 
stant capital itself, it is due either directly to the co-operation 
and social nature of labor within a certain line of production, 
or to the production of machinery, etc., on a scale in which its 
value does not grow at the same rate as its use-value. 

Two points must be kept in view here : First, if the value 
of c were zero, then p' would be equal to s', and the rate of 
profit would be at its maximum. In the second place, the 
most important thing for the direct exploitation of labor is not 
the exchange-value of the employed means of exploitation, 
whether they be fixed capital, raw materials or auxiliary sub- 
stances. In so far as they serve as means to absorb labor, as 
media in and by which labor and surplus-labor are material- 
ized, the exchange-value of buildings, raw materials, etc., is 
quite immaterial. That which is ultimately essential is on the 
one hand tlie quantity of them technically required for their 
combination with a certain quantity of living labor, and on the 
other hand their fitness ; in other words, not only the ma- 
chinery, but also the raw and auxiliary materials must be good. 
The good quality of the raw material determines in part the 
rate of profit. Good material leaves less waste. A smaller 
mass of raw materials is then need'ed for the absorption of 
the same quantity of labor. The resistance to be overcome 
Itv the wov-.-ariff mar-hhie is also less. This affects in part even 



100 Capitalist Production. 

the surplus-value and the rate of surplus-value. The laborer 
consumes more time with bad raw materials than he would 
with the same quantity of good material. Wages remaining 
the same, this implies a reduction of the surplus-labor. Fur- 
thermore this affects materially the reproduction and accumu- 
lation of capital which depend more on the productivity than 
on the mass of labor employed, as shown in volume I. 

The fanatic hankering of the capitalist after economies in 
means of production is therefore intelligible. That nothing 
is lost or wasted, that the means of production are consimied 
only in the manner required by production itself, depends 
partly on the skill and intelligence of the laborers, partly on 
the discipline exerted over them by the capitalist. This dis- 
cipline will become superfluous under a social system in which 
the laborers work for their own account, as it has already be- 
come practically superfluous in piece-work. This fanatic 
love of the capitalist for profit is expressed, on the other 
hand, by the adulteration of the elements of production, which 
is one of the principal means of reducing the value of the 
constant capital in comparison with the variable capital, and 
thus of raising the rate of profit. In addition to this, the 
sale of these elements of production above their value, so far 
as this value reappears in the product, plays a considerable 
role in cheating. This practice plays an essential part par- 
ticularly in German industry, whose maxim seems to be: 
People will surely appreciate getting first good samples and 
then inferior goods from us. However, these matters belong 
in a discussion of competition, and do not further concern us 
here. 

It should be noted that this raising of the rate of profit 
by means of a depreciation in the value of the constant capi- 
tal, in other words, by a reduction of its expensiveness, is 
entirely independent of the fact whether the line of indus- 
try, in which this takes place, produces articles of luxury, 
necessities of life for the individual consumption of laborers, 
or means of production. This circumstance would be of ma- 
terial importance only in the case that it would be a question 
of the rate of surplus-value, which depends essentially on the 



Economies in Employment of Constant Capital. loi 

value of labor-power, and consequently on the value of the 
customary necessities of the laborer. But in the present case 
the surplus-value and the rate of surplus-value have been as- 
sumed as given. The proportion of the surplus-value to the 
total capital, which determines the rate of profit, depends 
under these circumstances exclusively on the value of the con- 
stant capital, and in no way on the use-value of the elements 
of which this capital is composed. 

A relative cheapening of the means of production does not, 
of course, exclude the absolute increase of their aggregate 
values. For the absolute scope of their application grows 
extraordinarily with the development of the productive power 
of labor and the parallel extension of the scale of production. 
The economies in the use of constant capital, from whatever 
point of view they may be considered, are the result, either 
exclusively of the fact that the means of production serve as 
co-operative materials for the combined laborers, so that the 
resulting economies appear as products of the social nature of 
directly productive labor itself; or, in part, of the fact that 
the productivity of labor is developed in those spheres which 
supply capital with means of production, and in that case 
these economies present themselves once more as products of 
the development of the productive forces of social labor, pro- 
vided only that the total labor is compared with the total cap- 
ital, and not simply with the laborers employed by the indi- 
vidual capitalist owning this particular constant capital. The 
difference in this case is merely that the capitalist takes ad- 
vantage not only of the productivity of labor in his own es- 
tablishment, but also of that in other establishments. Never- 
theless, the capitalist presumes that the economies of his con- 
stant capital are wholly independent of his laborers and have 
nothing at all to do with them. On the other hand, the capi- 
talist is always well aware that the laborer has something to 
do with the fact whether the employer buys much or little 
labor with the same amount of money (for this is the form in 
which this transaction between the laborer and the capitalist 
appears in the mind of the latter). The economies realized 
in the application of constant capital, this method of getting 



102 Capitalist Production. 

a certain result out of the means of production with the small- 
est possible expense, is regarded more than any other power 
inherent in labor as a peculiar gift of capital and as a method 
characteristic of the capitalist mode of production. 

This conception is so much less surprising as it seems to 
be borne out bj facts. For the conditions of capitalist pro- 
duction conceal the internal connection of things by the utter 
indifference, alienation, and expropriation practiced against 
the laborer in the matter of the material means in which his 
labor must be incorporated. 

In the first place, the means of production constituting the 
constant capital represent only the money of the capitalist 
(just as the body of the ExDman debtor represented the money 
of his creditor, according to Ling-uet). The laborer comes in 
contact with them only in the direct process of production, in 
which he handles them as use-values of production, as instru- 
ments of labor and materials of production. The increase or 
decrease of the value of these things are matters which affect 
his relation to the capitalist no more than the fact that be 
may be working up either copper or iron. Occasionally, how- 
ever, the capitalist likes to profess a different conception of the 
matter, as we shall indicate later on. He does so whenever 
the means of production become dearer and thereby reduce his 
rate of profit. 

In the second place, so far as these means of production in 
the capitalist process of labor are at the same time means of 
exploiting labor, the laborer is no more concerned in the rela- 
tive dearness or cheapness of these means of exploitation than 
a horse is concerned in the dearness or cheapness of the bit 
and bridle by which it is steered. 

In the third place, we have seen previously that the social 
nature of labor, the combination of the labor of a certain 
individual laborer with that of other laborers for a common 
purpose, stands opposed to that laborer and his comrades as a 
foreign power, as the property of a stranger which he would 
not care particularly to save if he were not compelled to econo- 
mize with it. It is entirely different in the factories owned 
by the laborers themselves, for instance, in Rochdale. 



Economies in Employment of Constant Capital. 103 

It requires hardly any special mention, then, that the gen- 
eral interconnection of social labor, so far as it expresses the 
productivity of labor in one line of industry by a cheapening 
and improvement of the means of production in another line, 
and thereby a raising of the rate of profit, affects the laborers 
as a matter foreign to them and concerning only the capital- 
ists, since they are the ones who buy and own these means of 
production. The fact that the capitalist buys the product of 
the laborers of another line of industry with the product of 
the laborers in his own line, and that he disposes of the prod- 
uct of the laborers of another capitalist by virtue of having 
appropriated the unpaid products of his own laborers, is mer- 
cifully concealed for him by the process of circulation and its 
attending circumstances. 

This state of things is further complicated by the fact that 
these economies in the employment of constant capital assume 
the guise of being due to the peculiar nature of the capitalist 
mode of production, and to the special function of the capi- 
talist in particular. The thirst for profits and the demands 
of competition tend toward the greatest possibFe cheapening 
of the production of commodities, just as production on a large 
scale first develops in its capitalistic form. 

Capitalist production promotes on the one hand the develop- 
ment of the productive powers of social labor, and on the other 
it enforces economies in the employment of constant capital. 

However, capitalist production does not stop at the aliena- 
tion and expropriation of the laborer, the bearer of living 
labor, from his interest in the economical, that is to say, ra- 
tional and thrifty, use of the material requirements of his 
labor. In conformity with its contradictory and antagonistic 
nature, capitalist production proceeds to add to the economies 
in the use of constant capital, and thus to the means of in- 
creasing the rate of profit, a prodigality in the use of the life 
and health of the laborer himself. 

Since the laborer passes the greater portion of his life in 
the process of production, the conditions of this productive 
process constitute the greater part of the fundamental condi- 
tions of his vital activity, his requirements of life. Econo- 



104 Capitalist Production. 

mies in these requirements constitute a metliod of raising the 
rate of profit, just as we observed on previous occasions that 
overwork, the transformation of the laborers into laboring 
cattle, constitutes a means of self-expanding capital, of speed- 
ing up the production of surplus-value. Such economies are : 
The overcrowding of narrow and unsanitary rooms with la- 
borers, or, in the language of the capitalist, a saving in build- 
ings; a crowding of dangerous machinery into one and the 
same room without means of protection against this danger; 
a neglect of precautions in productive processes which are dan- 
gerous to health or life, such as mining, etc. ; not to mention 
the absence of all provisions to render the process of produc- 
tion human, agreeable, or even bearable, for the laborer. 
From the capitalist point of view, such measures would be 
quite useless and senseless. ISTo matter how economical capi- 
talist production may be in other respects, it is utterly prodi- 
gal with human life. And its saving in one direction is offset 
by a waste in another, owing to the distribution of its products 
through trade and the competitive method. Capitalism loses 
on one side for society what it gains on another for the in- 
dividual capitalist. 

Just as capital endeavors to reduce the direct application 
of living labor to necessary labor, and to abbreviate the labor 
required for the production of any commodity by the exploita- 
tion of the social productiveness of labor and thus to use as 
little living labor as possible, so it has also the tendency to 
apply this minimized labor under the most economical condi- 
tions, that is to say, to reduce the value of the employed con- 
stant capital to its minimum. While the value of commodi- 
ties is determined by the necessary labor-time contained in 
them, not by all of the labor-time incorporated in them, it is 
the capital which gives reality to this determination and at 
the same time reduces continually the labor-time socially neces- 
sary for the production of a certain commodity. The price 
of that commodity is thereby lowered to its minimum, since 
every portion of the labor required for its production is re- 
duced to its minimum. 

It is necessary to make a distinction in the economies real- 



Economies in Employment of Constant Capital. 105 

ized in the employment of constant capital. If the mass, and 
consequently the amount of the value, of the employed capital 
increases, it means primarily a concentration of more capi- 
tal in one hand. ITow, it is precisesly this greater mass in 
one hand, going hand in hand, as a rule, with an absolute in- 
crease but relative decrease of the number of employed la- 
borers, which permits economies in constant capital. From 
the point of view of the individual capitalist the volume of 
the necessary investment of capital, especially of its fixed por- 
tion, increases. But compared to the mass of the worked-up 
materials and of the exploited labor the value of the invested 
capital relatively decreases. 

This will now be briefly illustrated by a few examples. We 
begin at the end, with economies in the conditions of produc- 
tion which are at the same time the living conditions of the 
laborer. 

II. Economies in the conditions of labor at the expense of 

the laborers. 

Coal Mines. Neglect of the most indispensable Expenditures. 

" Owing to the competition between the proprietors of coal 
mines, expenses are kept down to the minimum required for 
overcoming the most palpable physical difiiculties ; and owing 
to the competition among the miners, whose numbers generally 
exceed the demand, they are glad to expose themselves to con- 
siderable danger and to the most injurious influences for a 
wage which is little above that of the day laborers in the neigh- 
boring country districts, more especially since mining permits 
them to utilize their children profitably. This double compe- 
tition is fully sufficient ... to effect the operation of 
a large portion of the mines with the most imperfect drainage 
and ventilation; very often with badly built shafts, bad pip- 
ing, incapable machinists, with badly planned and badly con- 
structed galleries and tracks and this causes a destruction of 
life, limb, and health, the statistics of which would present an 
appalling picture." (First Report on Children's Employ- 
ment in Mines and Collieries, etc., April 21, 1829, page 129.) 



io6 Capitalist Production. 

About 1860, the average of fatal accidents in the English 
collieries amounted to 15 men per week. According to the re- 
port on Coal Mines Accidents (February 6, 1862), the total 
deaths from accidents during the ten years from 1852—61 
amounted to 8,466. But the report itself admits that this 
number is far too low, because in the first years, when the in- 
spector had just been installed and their districts were far 
too large, a great many accidents and deaths were not reported. 
The very fact that the number of accidents has decreased since 
the installation of the inspectors, in spite of their insufiicient 
numbers and limited powers, shows the natural tendencies of 
capitalist production. Still the number of the killed is very 
large. These sacrifices of human beings are mostly due to the 
gToveling greed of the mine owners. Very often they had only 
one shaft dug, so that there was not only no effective ventila- 
tion but also no escape if this shaft became clogged. 

Looking upon capitalist production in its details, aside from 
the process of circulation and the excrescences of competition, 
we find that it is very economical with materialized labor in- 
corporated in commodities. But it is more than any other 
mode of production prodigal with human lives, with living 
labor, wasting not only blood and flesh, but also nerves and 
brains. Indeed, it is only by dint of the most extravagant 
waste of individual development that human development is 
safeguarded and advanced in that epoch of history which im- 
mediately precedes the conscious reorganisation of society. 
Since all the economies here mentioned arise from the social 
nature of labor, it is just this social character of labor which 
causes this waste of the lives and health of the laborers. 
The following question suggested by factory inspector B. 
Baker is characteristic in this respect : " The whole question 
is one for serious consideration, in what way this sacrifice of 
infant life occasioned by congregational labor can be averted ? " 
(Eeport Fact., October 1863, page 157.) 

Factories. Under this head belongs the disregard for all 
precautions for the security, comfort, and health of the la- 
borers, also in the factories. A large portion of the bulletins 
of casualties enumerating the wounded and slain of the indus- 



Economies in Employment of Constant Capital. 107 

trial army belong here (see tlie annual factory reports). 
Furthermore lack of space, ventilation, etc. 

As late as October, 1855, Leonard Horner complained about 
the resistance of numerous manufacturers against the legal 
requirements concerning protective appliances on horizontal 
shafts, although the dangerous character of these shafts was 
continually proved by accidents, many of them fatal, and al- 
though the appliance for protection against this danger was 
neither expensive nor interfered with the work. (Rep. Fact., 
October, 1855, page 6.) In their resistance against this and 
other legal requirements, the manufacturers are ably seconded 
by the unpaid justices of the peace, who are themselves man- 
ufacturers or their friends, and who render their verdicts ac- 
cordingly. What sort of verdicts those gentlemen rendered 
was revealed by Superior Judge Campbell, who said with ref- 
erence to one of them, against which an appeal was made to 
him : " This is not an interpretation of an act of parliament, 
it is simply its abolition." (L. c, page 11.) Horner says in 
the same report that in many factories machinery is started 
up without warning the laborers. Since there is always some- 
thing to look after, even when the machinery is at a stand- 
still, there are always many hands and fingers busy on it, and 
accidents happen continually from the omission of a mere sig- 
nal. (L. c, page 44.) The manufacturers of that period 
had formed a union opposing the factory legislation, the so- 
called " JSTational Association for the Amendment of the Fac- 
tory Laws " in Manchester, v/hich collected, in March, 1855, 
more than 50,000 p.st. by an assessment of 2 shillings per 
horse-power. This sum v/as to pay for lawsuits of the mem- 
bers of the association against court proceedings instigated by 
factory inspectors, all cases of this kind being fought by the 
union. The issue was to prove that killing is no murder when 
done for profit. The factory inspector for Scotland, Sir John 
Kincaid, relates of a certain firm in Glasgow that it used the 
old iron of its factory to make protective appliances for all 
its machinery, the cost being 9 p.st. 1 shilling. If this firm 
had joined the manufacturers' union, it would have had to 
pay an assessment of 11 p.st. on its 110 horse powers. This 



io8 Capitalist Production. 

would have been more than the cost of all its protective ap- 
pliances. But the ISTational Association had been organized 
in 1854 for the express purpose of opposing the law which 
prescribed such protection. The manufacturers had paid no 
attention whatever to this law during all the time from 1844 to 
1854. At the instruction of Palmerston the factory inspectors 
then informed the manufacturers that the law would hence- 
forth be enforced. The manufacturers immediately founded 
their union. Many of its most prominent members were jus- 
tices of the peace who were supposed to carry out this law. 
When the new Minister of the Interior, Sir Gteorge Grey, 
offered a compromise, in April, 1855, to the effect that the 
government would be content with practically nominal appli- 
ances for protection, the Association declined even this, with 
indignation. In various lawsuits, the famous engineer 
Thomas Fairbairn permitted the manufacturers to throw the 
weight of his name into the scale in favor of economies and 
in defense of the violated liberty of capital: The chief of fac- 
tory inspectors, Leonard Horner, was persecuted and ma- 
ligned by the manufacturers in every conceivable manner. 

But the manufacturers did not rest until they had obtained 
a writ of the Queen's Bench, which interpreted the Law of 
1844 to the effect that no protective appliances were prescribed 
for horizontal shafts installed more than seven feet above the 
ground. And finally they succeeded in 1856 in securing an 
act of parliament entirely satisfactory to them, by the help of 
the hypocrite Wilson Patten, one of those pious souls whose os- 
tentatious religion is always ready to do dirty work for the 
knights of the money-bag. This act practically deprived the 
laborers of all special protection and referred them to the 
common courts for the recovery of damages in cases of acci- 
dent by machinery (which amounted practically to a mockery, 
on account of the excessive cost of lawsuits). On the other 
hand, this act made it almost impossible for the manufacturers 
to lose a lawsuit, by providing in a very nicely worded clause 
for expert testimony. As a result, the accidents increased 
rapidly. In the six months from May to October, 1858, In- 
spector Baker reported an increase of accidents exceeding that 



Economies in Employment of Constant Capital. 109 

of the preceding six montlis by 21%. He was of the opinion 
that 36.7% of these accidents might have been avoided. It 
is true, that the number of accidents in 1858 and 1859 was 
considerably below that of 1845 and 1816. It was 29% less, 
although the number of laborers had increased by 20% in 
the industries subject to inspection. But what was the reason 
for this? So far as the moot question was settled in 1865, it 
was due mainly to the introduction of new machinery which 
was provided with protective appliances from the start and 
to which the manufacturer did not object because they re- 
quired no extra expense. A few laborers had also succeeded 
in securing heavy damages for their lost arms and having this 
sentence upheld even by the highest courts. (Rep. Fact., 
April 30, 1861, page 31, and April 1862, page 17.) 

This may suffice to illustrate the economies in appliances by 
which life and limb of laborers (also children) are to be pro- 
tected against dangers arising in the handling and operating 
of machinery. 

Worh in Closed Rooms. It is well known to what extent 
economies of space, and thus of buildings, crowd the laborers 
into narrow rooms. This is intensified by economies in ap- 
pliances for ventilation. These two economies, coupled with 
an increase of the labor time, produce a large increase in the 
diseases of the respiratory organs, and consequently an in- 
crease of mortality. The following illustrations have been 
taken from the Reports on Public Health, 6th report, 1863. 
This report was compiled by Dr. John Simon, well-known 
from our volume I. 

Just as the combination of co-operative labor permits the 
operation of machinery on a large scale, the concentration of 
means of production, and economies in their employment, so 
it is the co-operation of large numbers of laborers in closed 
rooms and under conditions determined by the ease of manu- 
facture, not by the health of the laborer, which is on the one 
hand the source of increased profits for the capitalist and on 
the other the cause of the waste of the lives and health of the 
laborers, unless it is counteracted by a reduction of the hours 
of labor and by special precautions. 



no 



Capitalist Production. 



Dr. Simon formulates the following rule and backs it up 
with abundant statistics : " To the extent that the population 
of a certain district is made dependent upon co-operative labor 
in close rooms, to the same extent, other conditions remaining 
the same, increases the rate of mortality in that district through 
pulmonary diseases." (Page 23.) The cause of this is bad 
ventilation. " And there is probably in all England not a 
single exception from the rule that in every district, which 
has an important industry carried on in closed rooms, the in- 
creased mortality of its laborers suffices to color the mortality 
statistics of the entire district with a decided excess of pul- 
monary diseases." (Page 24.) 

The mortality statistics of industries carried on in closed 
rooms, as examined by the Board of Health in 1860 and 1861, 
show the following facts : The same number of men between 
the ages of 15 and 55, having a rate of 100 deaths from con- 
sumption and other pulmonary diseases in English agricul- 
tural districts, has a rate of 163 deaths from consumption in 
Coventry, 167 in Blackburn and Skipton, 168 in Congieton 
and Bradford, 171 in Leicester, 182 in Leek, 184 in Maccles- 
field, 190 in Bolton, 192 in Nottingham, 193 in Kochdale, 
198 in Derby, 203 in Salford and Ashton-under Lyne, 218 in 
Leeds, 220 in Preston, and 263 in Manchester. (Page 24.) 
The following table gives a still more convincing illustration. 









DEATHS FROM PUL- 








MONARY DISEASES BE- 








TWEEN THE 


AGES OF I 1; 


DISTRICT. 


MAIN INDUSTRY. 




AND 25, PER 100,000 




MEN 


WOMEN. 


Berkhampstead 


Straw plaiting done 
women 


by 


219 


578 


Leighton Buzzard 


Straw plaiting done 
women 


by 


309 


554 


Newport Pagnell 


Manufacture of laces 
women 


by 


301 


617 


Towcester 


Manufacture of laces 
women 


by 


239 


577 


Yeovil 


Manufacture of gloves, 


280 


409 




mainly by women 








Leek 


Silk-industry, mainly 
women 


by 


437 


856 


Congieton 


Silk-industry, mainly 
women 


by 


566 


790 


Macclesfield 


Silk-industry, mainly 
women 


by 


S93 


890 


Healthy country district 


Agriculture 




331 


333 



Economies in Employment of Constant Capital. 1 1 1 

It shows the deaths from pulmonary diseases separately for 
both sexes, between the ages of 15 to 25, computed on every 
100,000. The districts selected are those in which only the 
women are employed in the industry carried on in closed 
rooms, while the men are employed in all possible lines of 
work. 

In the districts with silk-industries, in which the participa- 
tion of men in factory work is greater, their death-rate is 
also higher. The death rate from consumption, etc., in both 
sexes reveals, according to the report, the atrocious sanitary 
conditions under which a large portion of our silk-industry is 
carried on." And this is the same silk-industry whose manu- 
facturers, boasting of the exceptionally favorable and sanitary 
conditions in their establishments, demanded an exception- 
ally long labor-time for children under 13 years of age, and 
were granted permission in several instances. (Volume I, 
chapter X, 6.) 

" I^^one of the hitherto investigated industries will have 
presented a worse picture than that given by Dr. Smith of 
tailoring. The work rooms, he says, differ considerably in 
the matter of sanitation ; but nearly all of them are over- 
crowded, badly ventilated, and to a high degree injurious to 
health. . . . Such rooms are necessarily hot, as it is ; but 
if the gas is lighted, for instance during a fog in the daytime, 
or in winter in the evening, the heat rises to 80 or even 90 
degrees Fahrenheit (27 to 33 degrees C.) and causes a drip- 
ping perspiration and a precipitation of vapor on the glass 
panes, so that water is continually trickling down or dropping 
down from the skylight, and the laborers are compelled to 
keep some windows open, although they inevitably catch cold 
thereby. — He gives the following description of 16 of the 
most important shops of the West end of London : The largest 
cubic space alloted in these badly ventilated rooms to one la- 
borer is 270 cubic feet; the smallest is 105 feet, the average 
being 156 feet per man. In a certain shop, which has a gal- 
lery running all around its sides and which receives light only 
from above, from 92 to 100 people are employed and a large 
number of gas jets lighted; the toilets are next door, and the 



112 



Capitalist Production. 



room does not give above 150 cubic feet to each man. In an- 
other shop, which can be called only a dog kennel in a yard 
lighted from above and which can be ventilated only by one 
small window in the roof, from 5 to 6 people work in a room 
of 112 cubic feet per man." And " in these atrocious work 
rooms, described by Dr. Smith, the tailors work generally from 
12 to 13 hours per day, and at certain periods work is con- 
tinued for 14 to 16 hours." (Pages 25, 26, 28.) 



NUMBER OK PEOPLE EM- 
PLOYED. 


LINES OF INDUSTRY AND 
LOCALITY. 


RATE OF MORTALITY 

'per 100,000 BETWEEN 

THE AGES OF 




Agriculture, England and 

Wales 
Tailoring, London 

Typesetters and Printers, 
London 


2S-3S 


35-45 


45-55 


958,265 

22,301 men and 
12,377 women 

13,803 


743 
958 

894 


805 
1262 

1747 


1195 
2093 

2367 



(Page 30.) It must be noted, and has in fact been noted 
by John Simon, the chief of the Medical Department, who is- 
sued the report, that the mortality of the tailors, typesetters, 
and printers of London, for the ages from 25 to 35 years, has 
been reported too low, because the London employers in both 
lines have a large number of young people (probably up to 
30 years of age) from the country engaged as apprentices and 
" improvers," that is to say, men who are being trained. 
These increase the number of employed on which the death- 
rates of London are computed. But they do not contribute 
at the same rate to the number of deaths in London, because 
their stay there is only temporary. If they get sick during 
this period, they return to their homes in the country to get 
well, and if they die there, they are registered in their own 
district. This fact affects the earlier ages still more and ren- 
ders the death-rate figures of London for these ages completely 
valueless as standards of industrial violations of sanitary laws. 
(Page 30.) 

The case of the typesetters is similar to that of the tailors. 
In addition to lack of ventilation, poisoned air, etc., their con- 
dition is aggravated by night-work. Tlieir regular working 
time lasts from 12 to 13 hours, sometimes from 15 to 16, 



Economies in Employment of Constant Capital. 113 

" Great heat and suffocating air as soon as the gas is lighted. 
. . . It is not a rare occurrence that the fumes of a foundry, 
or the smell of machinery or of cesspools, rise from lower floors 
and aggravate the evils of the upper floors. The hot air of the 
lower rooms heats the upper ones by warming the floors, and 
if the rooms are low and much gas is burned in them, it is a 
great nuisance. It is still worse in places where steam engines 
are installed in the lower rooms and fill the whole house with 
undesirable heat. ... In general it may be said that the 
ventilation is defective throughout and totally insufficient to 
remove the heat and the products of combustion of the gas 
after sundown, and that conditions in many shops, especially 
if they were formerly living rooms, are most deplorable." In 
some shops, particularly for weekly papers, where boys of 12 
to 16 years are also employed, work is carried on almost unin- 
terruptedly for two days and one night; while in other print- 
ing shops, which make a specialty of job work, the laborer 
does not get a rest even on Sunday, so that his days of work 
are 7 instead of 6 per week. (Page 26, 28.) 

The milliners and dress makers occupied our attention also 
in volume I, chapter X, 3, so far as overwork was concerned. 
Their work rooms are described in the present report by Dr. 
Ord. Even if they are better during the day, they become 
overheated, foul, and unhealthy during the hours in which gas 
is burned. Dr. Ord found in 34 shops of the better sort that 
the average number of cubic feet per worker was as follows : 
" In four cases more than 500 ; in four other cases 400-500 ; 
in five cases 200-250; in four eases 150-200; and finally in 
nine cases only 100-150. Even the most favorable of these 
cases barely suffices for continued work, when the room is not 
perfectly ventilated. . . . Even with good ventilation the 
workshops become very hot and stuffy after dark on account 
of the many gas jets needed." And here follows a remark of 
Dr. Ord concerning one of the minor workshops operated for 
the account of a middleman: "One room, containing 1,280 
cubic feet; persons present, 14; space for every person, 91.5 
cubic feet. The girls looked haggard and neglected. There 
wages were said to be from 7 to 15 sh. per week, aside from 

H 



114 Capitalist Production. 

tea. . • . The hours of labor from 8 a. m. to 8 p. m. 
The small room, in which these 14 persons were crowded to- 
gether, was badly ventilated. There were two movable win- 
dows and a fireplace, which was, however, closed. There were 
no special appliances of any kind for ventilation." (Page 
27). 

The same report states with reference to the overwork of 
the milliners and dress makers : " The overworking of yonng 
women in fashionable millinery stores prevails only for about 
4 months in that monstrous degree which has elicited on many 
occasions the momentary surprise and indignation of the pub- 
lic. But during these months v/ork is as a rule continued in 
the shop for fully 14 hours per day, and on accumulated rush- 
orders for days from 17 to 18 hours." In other seasons work 
in the shop is carried on probably for 10 to 14 hours; those 
working at home are regmlarly engaged for 12 to 13 hours. 
In the making of ladies' cloaks, capes, shirts, etc., including 
work with a sewing machine, the hours passed in the common 
work room are fewer, generally not more than 10 to 12, but, 
says Dr. Ord, " the regular hours of labor in certain house?, 
at various times, are subject to considerable extension by 
means of extra paid overtime, and in others work is taken 
home in order to be finished after the regular working time. 
We may add that either one of these methods of over-work 
is often compulsory." (Page 28). John Simons remarks 
in a footnote to this page : " Mr. Eedcliffe, the secretary of 
the Epidemiological Society, who had especially frequent op- 
portunities to examine the health of milliners and dressmakers 
of the first firms, found among 20 girls who said of themselves 
that they were " quite well " only one in good health ; the 
others showed different degrees of physical exhaustion, nerv- 
ous debility, and numerous functional troubles arising there- 
from. He names as causes, in the first instance, the length 
of the working hours, which he estimates at a minimum of 12 
hours per day even in the dull season, and secondly, '■ over- 
crowding and bad ventilation of workrooms, air poisoned by 
gas lights, insufficient or bad food, and lack of provision for 
domestic comfort.' " 



Economies in Employment of Constant Capital. 115 

Tlie conclusion at wliicli the chief of the English Board of 
Health arrived, is that " it is practically impossible for la- 
borers to insist on that which is theoretically tlieir first san- 
itary right : the right of having their common labor freed from 
all needless conditions injurious to health, so far as may lie 
in the power of their employer, and at his expense, whatever 
may be the work to be accomplished by them for their em- 
ployer. And while the laborers themselves are actually not 
in a position to enforce this sanitary justice, neither can they 
expect any effective assistance from the officials responsible 
for the enforcement of th-e ]S[uisance Eemoval Acts, in spite 
of the presumable intention of the legislator." (Page 29.) — 
" There will no doubt be some small technical difficulties in 
the way of determining the lowest limit where the employers 
shall be subject to reg-ulation. But ... in principle 
the claim to the protection of health is universal. And in the 
interest of myriads of working men and working women, whose 
lives are needlessly stunted and shortened by the infinite 
physical ills caused by their occupations, I venture to express 
the hope that the sanitary conditions of labor will just as uni- 
versally be placed under fitting legal protection ; at least suffi- 
ciently to safeguard an effective ventilation of all closed work 
rooms, and to restrict as much as possible the particular un- 
sanitary influences naturally inherent in every dangerous line 
of industry." (Page 63.) 

III. Economies in the Generation of Power, Transmission 
of Poiver, and Buildings. 

In his report for October, 1852, L. Horner quotes a letter 
of the famous engineer James ISTasmyth of Patricrofit, the in- 
ventor of the steam hammer, which contains substantially the 
following statements. 

The public is little acquainted with the immense increase 
of motive power obtained through such changes of system and 
improvements (of steam engines) as he is mentioning. The 
machine power of the district of Lancashire was for almost 
forty years under the pressure of timid and prejudiced tradi- 
tions. But now the engineers have been happily emancipated. 



ii6 Capitalist Production. 

During the last 15 years, but particularly in the course of the 
last 4 years (since 1848) a few important changes have taken 
place in the operation of condense steam engines. The re- 
sult was that the same machines accomplished far more work, 
and that the consumption of coal was considerably decreased 
at the same time. For many years, since the introduction of 
steam power in the factories of this district, the velocity which 
was considered safe for condense steam engines, was about 220 
feet of piston lift per minute, that is to say, a machine with a 
piston lift of 5 feet was limited by regulation to 22 revolu- 
tions of the shaft. It was not considered appropriate to drive 
the machine faster. And since the entire installation was 
adapted to this velocity of 220 feet of piston lift per minute, 
this slow and senselessly restricted motion prevailed in the 
factories for many years. But finally, either through a lucky 
unfamiliarity with this regulation, or for better reasons of 
some daring innovator, a greater velocity was tried, and, since 
the result was very favorable, this example was followed by 
others. The machine was given full rein, as the saying was, 
and the main wheels of the transmission gear were changed 
in such a way that the steam engine could make 300 feet per 
minute and more, while the machinery was kept at its former 
speed. This acceleration of the steam engine had become 
general, because it had been demonstrated that more available 
power was gained from the same machine, and that the move- 
ments were much more regular on account of the greater im- 
petus of the driving wheel. The same steam pressure and the 
same vacuum in the condenser produced more power by means 
of a simple acceleration of the piston lift. Tor instance, if by 
appropriate changes we can accomplish that a machine yield- 
ing 40 horse power with 200 feet per minute makes 400 feet 
with the same steam pressure and vacuum, we shall secure ex- 
actly double that power, and since the steam pressure and the 
vacuum are the same in both cases, the strain on the various 
individual parts of the machine, and thus the danger of acci- 
dents, will not materially increase with an increase of speed. 
The whole difference is that we consume more steam in com- 
parison to the accelerated movement of the piston, or at least 



Economics in Employment of Constant Capital. 117 

approximately so ; and furthermore, there is a somewhat more 
rapid wear of the bearings, or friction parts, hut this is hardly 
worth mentioning. But in order to obtain more power with 
the same machine by speeding up the piston, more coal must 
be burned under the same steam boiler, or a boiler of a larger 
volume of evaporation must be employed, in short, more steam 
must be generated. This was accomplished, and boilers with 
a greater volume were installed with the old " accelerated " 
machines. These accomplished consequently as much as 100% 
more work. About 1842, the extraordinarily cheap genera- 
tion of power with steam engines in the mines of Cornwall 
began to attract attention. The competition in cotton spin- 
ning compelled the manufacturers to seek the main source of 
their profits in economies. The remarkable difference in the 
consumption of coal per hour and horse-power shown by the 
Cornish machines, and likewise the extraordinarily econom- 
ical performances of the Woolf Double Cylinder Machines, 
brought the question of fuel into the foreground, also in 
ISTasmyth's district. The Cornish and the double cylinder 
machines furnished one horse-power per hour for every 3^ 
or 4 pounds of coal, while the machines in the cotton districts 
generally consumed 8 or 12 pounds per horse-power an hour. 
Such a marked difference induced the manufacturers and ma- 
chine builders of IsTasmyth's district to accomplish by similar 
means just such extraordinary economies as were then the rule 
in Cornwall and France, where the high prices of coal had 
compelled the manufacturers to restrict this expensive branch 
of their business as much as possible. This led to some very 
important results. In the first place, many boilers, one-half 
of whose surface remained exposed to the cold outer air 
in the time of high profits, were then covered with thick layers 
of felt, or bricks and mortar, and other material, by which the 
radiation of the heat, which had been generated at such high 
cost, was prevented. Steam pipes were protected in the same 
way, and the cylinders were also surrounded by felt and wood. 
In the second place, high pressure came into use. Hitherto 
the safety-valve had been weighted only so slightly that it 
opened at 4, 6, or 8 pounds of steam pressure per square inch, 



ii8 Capitalist Production. 

Then it was discovered that considerable coal could be saved 
by raising the pressure to 14 or 20 pounds. In other words, 
the work of a factory was accomplished by a considerably 
lower consumption of coal. Those who had the means and 
the enterprise carried the system of increased pressure to its 
full extension and employed judiciously constructed steam- 
boilers, which furnished steam at a pressure of 30, 40, 60, or 
70 pounds per square inch, which would have scared an en- 
gineer of the old school to death. But as the economic result 
of this increased steam-pressure soon made itself felt in the 
unmistakable form of so many pounds sterling, shillings, 
and pence, the high pressure boilers for condensing machines 
became very common. Those who carried out the reform 
radically used the Woolf machines, and this took place in most 
of the recently built machines. These were the Woolf 
machines with two cylinders, in one of which the steam from 
the boiler furnishes povv^er by means of the excess of pressure 
over that of the atmosphere, whereupon, instead of escaping as 
formerly after each stroke of the piston into the open air, it 
passes into a low pressure cylinder of about four times tlie 
volume of the other and, after accomplishing there some more 
expansion, goes to the condenser. The economic result ob- 
tained by such a machine is the performance of one horse- 
power per hour for every 3^ or 4 pounds of coal, while the 
machines of the old style required from 12 to 14 pounds for 
this purpose. A clever device permitted the adaption of the 
Woolf system with double cylinders, that is to say, the high 
and low pressure machine, to already existing machines and 
thus the increase of their performance and at the same time 
a reduction in the consumption of coal. The same result was 
obtained during the last 8 or 10 years by a combination of a 
high pressure machine with a condensing machine in such a 
way that the steam used in the former passed into the latter 
and drove it. This system is useful for many purposes. It 
would not be easily possible to obtain any accurate statistics 
of the increased performances of the same identical steam- 
engines supplied with some or all of these new improvemonts. 
But it is certain that the same weight of steam machinery now 



Economies in Employment of Constant Capital. 119 

performs 50% more service on an average, and that in many 
cases the same steam-engine, which yielded 50 horse-powers 
at the time of the limited speed of 220 feet per minute, yields 
now more than 100 horse-powers. The highly economical re- 
sults of the employment of high pressure steam in condensing 
machines, and the far greater demands made upon the old ma- 
chines for the purposes of business expansion, have led in the 
last three years to the introduction of pipe boilers, by which 
the cost of steam generation is again considerably reduced. 
(Rep. Fact, Oct., 1852, pages 23 to 27.) 

What applies to power generating, also applies to power 
transmitting and working machinery. According to Redgrave's 
report, on page 58 of the above-cited document, the rapid steps 
made in the development of improvements in machinery dur- 
ing the last years have enabled the manufacturers to expand 
production wdthout additional motive power. The more eco- 
nomical employment of labor has become necessary through 
the shortening of the working day, and in most well-managed 
factories means are always considered by which production 
may be increased, and expenses decreased. Redgrave has be- 
fore him a calculation, which he owes to the courtesy of a very 
intelligent gentleman in his district,- referring to the number 
and age of the laborers employed in his factory, the machines 
operated in it, and the wages paid from 1840 to date. In 
October, 1840, his firm employed 600 laborers, of whom 200 
were less than 13 years old. In October, 1852, they employed 
only 350 laborers, of whom only 60 were less than 13 years 
old. The same number of machines, with very few excep- 
tions, w^ere in operation, and the same amounts were paid in 
wages, in both years. 

These improvements of machinery do not show their full 
effects until they are used in new and judiciously built fac- 
tories. 

According to the testimony of a cotton spinner in the fac- 
tory reports for 1863, page 110, great progress has been made 
in the building of factories in which such improved machinery 
is to be installed. In the basement of his factory he twines 
all his yam, and for this purpose alone he installs 29,000 



I20 Capitalist Production. 

doubling spindles. In this room and in tlie shed alone lie 
saves at least 10% in labor. This is not so much the result 
of improvements in the doubling system, as of the concen- 
tration of machinery under one gearing. He can drive tlie 
same number of spindles with one single driving shaft, and 
thus he saves from 60 to 80% for gearing as compared to 
other firms. This furthermore results in a great saving of 
oil, grease, etc. In short, with perfected installations in his 
factory and improved machinery he had saved at least 10% 
in labor, not to mention great economies in power, coal, oil, 
grease, transmission belts and shafts. 

IV. Utilisation of tlie Excrements of Production. 

With the advance of capitalist production the utilisation of 
the excrements of production and consumption is extended. 
We mean by the former the refuse of industry and agricul- 
ture, and by the latter either the excrements, such as issue from 
the natural circulation of matter in the human body, or the 
form in which objects of consumption are left after being used. 
Excrements of production, for instance in chemical industries, 
are such by-products as are wasted in production on a smaller 
scale; iron filings collected in the manufacture of machinery 
and carried back into the production of iron as raw material, 
etc. Excrements of consumption are the natural discharges 
of human beings, remains of clothing in the form of rags, etc. 
The excrements of consumption have the most value for agri- 
culture. So far as their utilisation is concerned, the capital- 
ist mode of production wastes them in enormous quantities. 
In London, for instance, they find no better use for the ex- 
crements of four and a half million human beings than to con- 
taminate the Thames with it at heavy expense. 

The raising of the price of raw materials naturally leads to 
the utilisation of waste products. 

The general requirements for the re-employment of these 
excrements are: A great quantity of such excrements, such 
as is only the result of production on a large scale ; improve- 
ments in machinery by which substances formerly useless in 



Economies in Employment of Constant Capital. 121 

their prevailing form are given another useful in reproduction ; 
progress of science, especially of chemistry, which discovers 
the useful qualities of such waste. It is true, that great econ- 
omies of this sort are also observed in small agriculture carried 
on like gardening, for instance in Lombardy, southern China, 
and Japan. But on the whole the productivity of agricul- 
ture under this system is obtained by great prodigality in hu- 
man labor-power, which is drawn from other spheres of pro- 
duction. 

The so-called waste plays an important role in almost every 
industry. The factory report for December, 1863, mentions 
as one of the principal reasons why farmers in many parts of 
England and Ireland do not like to grow flax, or do so but 
rarely, the great waste occurring in the preparation of flax 
by small scutch-mills driven by water. The waste is rela- 
tively small in cotton, but very considerable in flax. Good 
treatment in soaking and mechanical scutching may reduce 
this disadvantage considerably. In Ireland flax is frequently 
scutched in a very slovenly manner, so that from 28 to dO% 
are lost. All this might be avoided by the use of better ma- 
chinery. So much tow fell by the side in the preparation of 
flax that the factory inspector reports having heard it said of 
some of the scutching mills in Ireland that the laborers carry 
the waste home and burn it in their fire-places, although it is 
very valuable. (Page 140 of the above report.) We shall 
speak of cotton later, in discussing the fluctuations of prices 
of raw materials. 

The wool industry was carried on more intelligently than 
the preparation of flax. The same report states on page 107 
that it was formerly the custom to veto the preparation of 
waste wool and woolen rags for renewed use, but this preju- 
dice has been entirely dropped so far as the shoddy trade is 
concerned, which has become an important branch of the wool 
district of Yorkshire. It is doubtless expected that the trade 
with cotton waste will soon occupy the same rank as a line 
of business meeting a long felt want. Thirty years previous 
to 1863, woolen rags, that is to say pieces of all-wool cloth, 
etc., were worth on an average about 4 p.st. 4 sh. per ton. But 



122 Capitalist Production. 

a few years before 1863 tliej had become worth as much as 
44 p.st. per ton. And the demand for them had risen to such 
an extent that mixed stuffs of wool and cotton were also used, 
means having been found to destroy the cotton without in- 
juring the wool. And thousands of laborers were employed 
in 1863 in the manufacture of shoddy, and the consumer ben- 
efited thereby, being enabled to buy cloth of good quality at 
very reasonable prices. The shoddy so rejuvenated consti- 
tuted in 1862 as much as one-third of the entire consumption 
of wool in English industry, according to the factory report 
of October, 1862, page 81. The truth about the "benefit" 
for the " consumer " is that his shoddy clothes wear out in 
one-third of the time which good woolen clothes used to last, 
and become threadbare in one-sixth of this time. 

The English silk industry moved on the same inclined 
plane. Erom 1839 to 1862 the consumption of genuine raw 
silk had somewhat decreased, while that of silk waste had 
doubled. By the help of improved machinery it was possible 
to make this otherwise rather worthless stuff into a silk useful 
for many purposes. 

The most striking instance of the utilisation of waste 
was furnished by the chemical industry. It utilises not only 
its own waste in new ways, but also that of many other in- 
dustries. For instance it converts the formerly almost useless 
gas-tar into aniline colors, alizarin, and more recently even 
into drugs. 

This economy through the re-employment of excrements of 
production must be distinguished from economies through the 
prevention of waste, that is to say, the reduction of excre- 
ments of production to a minimum and the maximum utilisa- 
tion at first hand of all raw and auxiliary materials required 
in production. 

The reduction of waste depends in part on the quality of 
the machinery in use. Oil, soap, etc., are saved to the extent 
that the parts of a machine are constructed accurately and 
polished. This refers to auxiliary materials. In part, how- 
ever, and this is the most important part, it depends on the 
quality of the employed machines and tools whether a large or 



Economies in Employment of Constant Capital. 123 

small portion of raw material is converted into waste in the 
process of production. Finally it depends on the quality of 
the raw material itself. This in turn is conditioned on the 
development of the extract industry and agriculture produc- 
ing the raw material (the progress of civilisation strictly so 
called), and on the improvement of processes through which 
the raw materials pass before their entry into manufacture. 
" Parmentier proved that the art of grinding grain was 
very materially improved in France in recent times, for in- 
stance since the time of Louis XIV, so that the new mills, 
compared to the old, can make as high as twice as much bread 
from the same amount of grain. In fact, the annual consump- 
tion of an inhabitant of Paris was at first placed at 4 setiers 
of grain, then at 3, finally at 2, while nowadays it is only 1|- 
setier, or about 342 lbs. per capita. ... In the Perche, 
in which I lived for a long time, the crude mills of granite 
and trap rock have been rebuilt according to the rules of ad- 
vanced mechanics as understood for the last 30 years. They 
have been provided with good mill stones from La Perte, the 
grain has been ground twice, the milling sack has been given 
a circular motion, and the output of flour has increased by 
one-sixth for the same amount of grain. I can easily explain 
the enormous discrepancy between the daily consumption of 
grain among the Romans and among us. It is due simply to 
the imperfect method of milling and bread making. In this 
connection I must explain a peculiar fact mentioned by Pliny, 
XVIII, c. 20, 2 : . . . ' The flour was sold in Rome, 
according to quality, at 40, 48, or 96 as per modius.' These 
prices, so high in proportion to the contemporaneous prices 
of grain, are due to the imperfect state of the mills of that 
period, and the resulting heavy cost of milling." (Dureau 
de la Malle, Economie Politique des Romains. Paris, 1840, 
I, page 28-0.) 



V. Economies Due to Inventions. 

These economies in the utilisation of fixed capital, we re- 
peat, are due to the application of the requirements of labor 



124 Capitalist Production. 

on a large scale, in short, are due to tlie fact that these require- 
ments serve as the first conditions of direct co-operative and 
social production, a co-operation within the primary process 
of production. On the one hand, this is the indispensable re- 
quirement for the application of mechanical and chemical in- 
ventions without increasing the price of commodities, and 
this is always the first consideration. On the other hand, 
only production on a large scale permits those economies which 
are derived from co-operative productive consumption. Fi- 
nally, it is only the experience of combined laborers which dis- 
covers the where and how of economies, the simplest methods 
of applying the experience gained, the way to overcome prac- 
tical frictions in carrying out theories, etc. 

Incidentally it should be noted that there is a difference 
between universal labor and co-operative labor. Both kinds 
play their role in the process of production, both flow one 
into the other, but both are also differentiated. Universal 
labor is scientific labor, such as discoveries and inventions. 
This labor is conditioned on the co-operation of living fellow- 
beings and on the labors of those who have gone before. Co- 
operative labor, on the other hand, is a direct co-operation of 
living individuals. 

The foregoing is corroborated by frequent observation, 
to-wit : 

1) The great difference in the cost of the first building of 
a new machine and that of its reproduction, on which see Ure 
and Babbage. 

2) The far greater cost of operating an establishment based 
on a new invention as compared to later establishments aris- 
ing out of the ruins of the first one, as it were. This is car- 
ried to such an extent that the first leaders in a new enterprise 
are generally bankrupted, and only those who later buy the 
buildings, machinery, etc., cheaper, make money out of it. 
It is, therefore, generally the most worthless and miserable 
sort of money-capitalists who draw the greatest benefits out of 
the universal labor of the human mind and its co-operative 
application in society. 



The Effect of Fluctuations in Price. 125 



CHAPTER YI. 

THE EFFECT OF FLUCTUATIONS IN PEICE; 

I. Fluctuations in the Price of Raw Materials, and their 
Direct Effects on the Rate of Profit. 

The assumption in this case, as in previous ones, is that no 
change takes place in the rate of surplus-value. This assump- 
tion is necessary in order that this case may be analysed in its 
pure state. However, it would be possible that a certain cap- 
ital, whose rate of surplus-value remains unchanged, might 
employ an increasing or decreasing number of laborers, in con- 
sequence of contraction or expansion caused by fluctuations 
in the price of raw materials such as we are about to analyse 
here. In that case, the mass of surplus-value might vary, 
while the rate of surplus-value remained the same. Still, it 
will be convenient to set aside also such a case as a side-issue. 
If improvements of machinery and changes in the price of 
raw materials simultaneously influence either the number of 
laborers employed by a certain capital, or the level of wages, 
one has but to tabulate 1) the effect caused by the variations 
of constant capital in the rate of profit, and 2) the eifect caused 
by variations in wages on the rate of profit. The result then 
becomes apparent of itself. 

But in general, it should be noted here, as in previous cases : 
If variations take place, either in consequence of economies 
in the constant capital, or in consequence of fluctuations in 
the price of raw materials, they always affect the rate of profit, 
even though they may leave the wages, and therefore the ma^ss 
and rate of surplus-value, untouched. They change the mag- 
nitude of the C in s' -^, and thus the value of the whole frac- 
tion. It is therefore immaterial, in this case, in contradis- 
tinction to what we found to be the case in our analysis of 
surplus-value, in which sphere of production these variations 



126 Capitalist Production. 

take place, whether the lines of production affected by them 
produce articles of food for laborers, or constant capital for 
the production of such articles, or not. The deductions made 
here apply just as well if these variations occur in the produc- 
tion of articles of luxury, and by the production of articles of 
luxury I mean all production not serving for the reproduction 
of labor-power. 

In the raw materials we include here also the auxiliary 
substances, such as indigo, coal, gas, etc. Furthermore, so far 
as machinery falls under this head, its own substance consists 
of iron, wood, leather, etc. Its own price is therefore affected 
by fluctuations in the prices of raw materials used in its con- 
struction. To the extent that its price is raised through 
fluctuations, either in the price of the raw materials of which 
it consists, or of the auxiliary substances consumed in its 
operation, the rate of profit is lowered. And vice versa. 

In the following analysis it will be necessary to confine 
ourselves to fluctuations in the price of raw materials, not so 
far as they go to make up the raw materials of machinery 
serving as means of production, or as raw materials in aux- 
iliary substances applied in the operation of machinery, but 
in so far as they are raw materials contributing to the process 
in which commodities are produced. We make only this re- 
mark : The wealth of nature in iron, coal, wood, etc., which 
are the principal elements used in the construction and oper- 
ation of machinery, presents itself here as a natural fertility 
of capital and becomes an element in determining the rate of 
profit, independently of the highness or lowness of wages. 

Since the rate of profit is represented by -^, or ^, it is 
evident that everything which causes a variation of the mag- 
nitude of c, and thereby of C, must also bring about a varia- 
tion in the rate of profit, even if s and v, and their mutual 
proportions, remain unaltered. ]^ow, raw materials consti- 
tute one of the principal portions of constant capital. Even 
in industries which consume no raw material, in the strict 
meaning, it enters as auxiliary material, or as a component 
part of machinery, etc., and fluctuations in its price influence 
to that extent the rate of profit. If the price of raw material 



The Effect of Fluctuations in Price. 127 

falls by the amount d, then -J, or ^, become f~, or (c_d)+v , 
in other words, the rate of profit rises. On the other hand, 
if the price of raw material rises, then -^, or ^, become 
cfd» o^ ' (c+d)+v ? ^^ other words, the rate of profit falls. Other 
circumstances remaining unchanged, the rate of profit falls 
and rises, therefore, inversely as the price of raw material. 
This shows, among other things, how important, the low price 
of raw material is for industrial countries, even if fluctuations 
in the price of raw materials were not accompanied by varia- 
tions in the selling sphere of the product, that is to say, quite 
aside from the relation of demand to supply. It follows fur- 
thermore that foreign trade influences the rate of profit, even 
aside from its influence on wages through the cheapening of 
the necessities of life, for it affects the prices of raw or aux- 
iliary materials consumed in industry or agriculture. It is 
due to the imperfect understanding of the nature of the rate 
of profit and its specific difference from the rate of surplus- 
value that economists (like Torrens) give a wrong explana- 
tion of the marked influence of the prices of raw material on 
the rate of profit, as demonstrated by experience, and that on 
the other hand economists like Eicardo, who cling to general 
principles, misapprehend the influence of such factors as the 
world's trade on the rate of profit. 

We may realise, then, the great importance of the abolition 
or reduction of tariffs on raw materials for industry. Al- 
ready the first rational development of the protective system 
made the utmost reduction of import diities on raw materials 
one of its cardinal principles. This, and the abolition of the 
duty on corn, was the main object of the English free traders, 
who took also, above all, care to have the duty on cotton abol- 
ished. 

The use of flour in the cotton industry may serve as an 
illustration of the importance of a reduction in the price of 
an article, which, although not strictly raw material, is an 
auxiliary and, of course, at the same time one of the princi- 
pal elements of food. As long ago as 1837, E. H. Gteg ^^ 

I'The Factory Question and the Ten Hours Bill. By R. H. Greg. London, 
1837, page 115. 



128 Capitalist Production. 

calculated that the 100,000 power looms and 250,000 hand 
looms then operated in the cotton mills of Great Britain con- 
sumed 41 million lbs. of flour in the smoothing of chains. 
To this was added a third of this quantity for bleaching and 
other processes. The total value of the flour so consumed was 
placed by him at 342,000 p.st. per year for the preceding ten 
years. A comparison with the prices of flour on the con- 
tinent showed that the raise in the price of flour forced upon 
the manufacturers by the corn-laws amounted alone to 170,000 
p.st. per year. Eor 1837, Greg estimated it at a minimum of 
200,000 p.st, and he mentions the fact that one firm had to 
pay 1,000 p.st. more per year for flour. In consequence of 
this " Large manufacturers, careful and calculated business 
men, declared that 10 hours of labor per day would be enough, 
if the corn-laws were repealed." (Rep. Fact., Oct. 1848, 
page 98.) The corn-laws were repealed. Also the duties on 
cotton and other raw materials. But no sooner had this been 
accomplished than the opposition of the manufacturers to 
the Ten Hours Bill became more violent than ever. And 
when the ten hour day in factories nevertheless became a law 
soon after, the first result was an attempt to reduce wages all 
around. 

The value of the raw materials and auxiliary substances 
passes entirely, and all at one time, into the value of the 
product in whose creation they are consumed, while the ele- 
ments of fixed capital transfer their value only gradually to 
the product in proportion as they are worn away. It follows 
that the price of the product is influenced to a far higher de- 
gree by the price of raw materials than by tliat of fixed capi- 
tal, although the rate of profit is determined by the total value 
of the capital, regardless of how much of this capital is con- 
sumed in the product. But it is evident — although we men- 
tion this merely incidentally, since we are still assuming that 
commodities are sold at their values, so that fluctuations of 
price caused by competition do not concern us here — that the 
expansion or restriction of the market depends on the price of 
the individual commodity and is inversely proportioned to the 
rise or fall of this price. For this reason we note in reality 



The Effect of Fluctuations in Price. 129 

that a rise in tlie price of raw material is not accompanied 
by a corresponding rise of the price of the product, nor a fall 
in the price of the raw material by a corresponding fall of that 
of the product. Consequently the rate of profit falls lower 
in one case, and rises higher in the other, than it would if 
products were sold at their value. 

Furthermore, the mass and value of the employed machinery 
grows with the development of the productivity of labor, but 
not in the same proportion as this productivity, in other words, 
not in the same proportion as the machine increases its output. 
Those lines of industry, which consume raw materials, so that 
the objects on which they expend their labor are themselves 
products of previous labor, express the gTowing productivity 
of labor precisely by the proportion in which a certain in- 
creased portion of raw material absorbs a definite quantity of 
labor. In other words, this increasing productivity is meas- 
ured by the increasing amount of raw material converted into 
products, worked up into commodities, for instance, in one 
hour. To the extent, then, that the productivity of labor is 
developed, the value of raw material forms an ever growing 
component of the value of the product in commodities, not 
only because it passes wholly into them, but also because 
every aliquot part of the aggregate product contains an ever 
decreasing share of that portion which represents the wear of 
machinery and that other which represents newly added labor. 
In consequence of this falling tendency the other portion of 
value which represents raw material increases correspondingly, 
unless this growth is counterbalanced by a proportionate de- 
crease in the value of the raw material due to a growing 
productivity of the labor required for its production. 

Again, we know that the raw materials and auxiliary sub- 
stances, the same as wages, form parts of the circulating cap- 
ital and must be continually reproduced in their entirety 
through the sale of the product, while the machinery is re- 
newed only to the extent that it wears out, a reserve fund be- 
ing accumulated for that purpose. And it is not so essential 
that each individual sale should contribute its share to this 

reserve fund, so long as the total annual sales contribute their 

I 



130 Capitalist Production. 

annual share. We see, then, once more that a rise in the 
price of raw material can curtail or clog the entire process of 
reproduction, since the price realised by the sale of the com- 
modities may not suffice to reproduce all the elements of these 
commodities. Or, it may render a continuation of the process 
on a scale fitting for its technical basis impossible, so that 
either a portion of the machinery remains idle, or the whole 
machinery works only a part of the usual time. 

Finally, the expense due to waste varies in direct propor- 
tion to the fluctuations in the price of raw material, rises and 
falls with them. Of course, there is a limit also in this case. 
In 1850 it was still reported, in the factory reports for April, 
1850, page 17, that one source of considerable losses through 
the raising of the price of raw material would hardly be no- 
ticed by any one who is not a practical spinner, namely losses 
through waste. The reporting inspector had been informed 
that a rise in the price of cotton implied a greater rise in the 
expenses of the spinner than is indicated by the difference 
in price. The waste in the spinning of coarse yarns 
amounts to fully 15%. If this percentage causes a loss of 
I d. per lb. when cotton is Avorth 3^ d,, then the loss 
increases to 1 d. per lb. as soon as cotton rises to 7 d. 
per lb. But when, as a result of the American Civil War, 
cotton rose to a height not equalled in almost a century, the 
report read differently. We learn from the factory reports of 
October, 1863, page 106, that the price then paid for cotton 
waste, and the return of the waste to the factory as raw ma- 
terial, offered some compensation for the difference in the 
loss through waste between Indian and American cotton. 
This difference amounted to 12^%. The loss in working up 
Indian cotton is 25%, so that really this cotton costs the spin- 
ner one-fourth more than he paid for it. The loss through 
waste was not so important while American cotton was quoted 
at 5 or 6 d. per lb., for it did not exceed f d. per lb. But it 
became a matter for serious consideration, when cotton cost 2 
sh. per ]b. and the loss through waste amounted to 6d.^^ 

'* The report makes a mistake in the last sentence. Instead of 6d. for loss, 
through waste, only 3d. should be allowed. This loss amounts indeed to 35% with 



The Effect of Fluctuations in Price. 131 

II. Appreciation, Depreciation, Release, and Tie-up of 

Capital. 

The phenomena analysed in this chapter require for their 
full development the credit-system and competition on the 
world-market, the latter being the basis and vital element of 
capitalist production. These more concrete forms of capi- 
talist production can be comprehensively presented only after 
the general nature of capital is understood. Moreover, such 
a presentation lies outside of the scope of this work and be- 
longs in its eventual continuation. ISTevertheless, the phenom- 
ena mentioned in the title of this chapter may be discussed at 
this stage in a general way. They are interrelated among 
themselves, and at the same time touch upon the rate and mass 
of profits. They are entitled to consideration right here for 
the further reason that they create the impression that not 
only the rate, but also the mass of profit — which is actually 
identical with the mass of surplus-value — could increase or 
decrease independently of the movements of surplus-value, 
whether it be its mass or its rate. 

Are we to consider the release and tie-up of capital on one 
side, its appreciation or depreciation on the other, as different 
phenomena ? 

The question is first : What do we mean by the release and 
tie-up of capital ? Appreciation and depreciation explain 
themselves. They do not signify anything but that a certain 
given capital grows or declines in value as a result of general 
economic conditions of some sort^ for we do not discuss any 
particular fate of some individual capital. They indicate, in 
short, that the value of the capital invested in production rises 
or falls, aside from the question of its self-expansion by 
means of the surplus-labor employed by it. 

By the tie-up of capital we mean that a certain portion of 
the total value of the product must be reconverted into the 
elements of constant and variable capital, if production is to 

Indian, but only to IZyi to 15% with American cotton, and this last kind is 
meant, the same percentage being correctly stated for the price of 5 to 6d. It is 
true, however, that the percentage of waste increased at times considerably, for 
American cotton brought to Europe during the tlosing years of the Civil 
War.— F. E. 



132 Capitalist Production. 

proceed on the same scale. By the release of capital we mean 
that a portion of that part of the total value of the product 
Avhich had to be reconverted into constant or variable capital 
up to a certain time becomes disposable and superfluous, pro- 
vided production is to continue on the same scale. This re- 
lease or tie-up of capital is different from the release or tie- 
up of revenue. If the annual surplus-value of a certain 
capital C is equal to x, then a reduction in the price of com- 
modities consumed by the capitalists would suffice to procure 
the same enjoyments as before by means of x — a. In other 
words, a portion of the revenue equal to a is released, and 
may serve either for the extension of consumption or the re- 
conversion into capital (for the purpose of accumulation). 
Vice versa, if x -}- a is needed in order to continue the same 
scale of living, then this scale must either be reduced or a 
portion of revenue equal to a and previously accumulated 
must be drawn upon as revenue. 

The appreciation or depreciation may strike either the con- 
stant, or the variable capital, or both. In the case of the con- 
stant capital it may affect either the fixed, or the circulating 
portion, or both. 

In the case of the constant capital we have to consider the 
raw materials and auxiliary substances, including half -wrought 
articles, all of which we comprise here under the term raw 
materials, furthermore, machinery and other fixed capital. 

We referred in the preceding analysis especially to varia- 
tions in the price, or the value, of raw materials, and to their 
influence on the rate of profit. And we announced the general 
law that, other circumstances remaining the same, the rate 
of profit is inversely proportioned to the value of the raw 
materials. This is unconditionally true of a capital newly 
invested in any business enterprise, where the investment of 
capital, that is to say the conversion of money into productive 
capital, is just taking place. 

But aside from this capital in process of new investment, a 
large portion of the already functioning capital is engaged in 
the sphere of circulation, while another portion is busy in 
the sphere of production. One portion exists on the market 



The Effect of Fluctuations in Price. 133 

in the shape of commodities waiting to be converted into 
money; another exists in the shape of money of some kind 
waiting to be reconverted into elements of production, finally, 
a third portion exists in the sphere of production, either in 
the primitive form of means of production (raw materials, 
auxiliary substances, half-wrought articles purchased on the 
market, machinery and other fixed capital), or as products in 
process of manufacture* The effect of appreciation or de- 
preciation of any of these depends in a large measure on the 
relative proportions of these things. Let us leave aside, for 
the sake of simplicity, all fixed capital, and let us consider 
only that portion of constant capital which consists of raw 
materials, auxiliary substances, partly wrought articles, and 
commodities in the making or in a finished state. 

If the price of raw material, for instance of cotton, rises, 
then the price of those cotton goods which were made while 
cotton was cheaper — both half -wrought articles like yarn, 
and finished goods like cotton fabric — rises along with that 
of the rest. So does the value of tlie cotton held in stock and 
waiting to be worked up and that of the cotton in process of 
being worked. This last-named cotton then represents by in- 
direction more labor-time than was incorporated in it, and 
consequently it adds more value than its own original one to 
the product which it goes to make up, and more than the 
capitalist paid for it. 

If, then, a rise in the price of raw materials finds on the 
market a considerable quantity of finished commodities, what- 
ever may be the state of their perfection, the value of these 
commodities rises, and consequently the value of the existing 
capital is enhanced. The same is true for the supply of raw 
materials in the hands of the producers. This appreciation 
of value may indemnify the individual capitalist, or even an 
entire sphere of capitalist production, for the loss caused by 
a fall in the rate of profit incidental to a rise in the price 
of raw materials, or it may even more than make good that 
loss. Without entering into the details of the effects of com- 
petition, we may state for the sake of completeness that, in 
the first place, when the supplies of raw material held in stock 



134 Capitalist Production. 

are considerable, they fend to oppose a rise in the price of 
raw materials at the place where they are produced; and in 
the second place, when the half-wrought articles and finished 
goods press very heavily upon the market, they prevent the 
price of these things from rising in proportion to the price of 
their raw materials. 

The reverse takes place when there is a fall in the price 
of raw materials. Other circumstances remaining the same, 
it increases the rate of profit. The commodities on the mar- 
ket, the articles in the making, and the supplies of raw mate- 
rial depreciate in value and thereby counteract the accom- 
panying rise in the rate of profit. 

The effect of a variation in prices of raw materials be- 
comes so much more marked, the smaller a quantity of sup- 
plies exists in the sphere of production and on the market, 
for instance at the close of a business year, Avhen great masses 
of raw materials are delivered anew, as happens in agriculture 
after the harvest. 

We start in this entire analysis from the supposition that 
a rise or a fall in prices are the expressions of actual varia- 
tions in value. But since we are here concerned in the effects 
of such variations in price on the rate of profit, it matters 
little what is at the bottom of them. The present statements 
apply just as well in the case that prices rise or fall, not on 
account of variations in value, but of the influence of the 
credit-system, competition, etc. 

Seeing that the rate of profit is the expression of the excess 
of the value of the product over the value of the total capital 
advanced, a rise of the rate of profit due to a depreciation of 
the advanced capital would be accompanied by a loss in the 
value of capital. And a lowering of the rate of profit due to 
an appreciation of the advanced capital might be accompanied 
by gains. 

As for the other portion of constant capital, such as ma- 
chinery, and fixed capital in general, the appreciation of val- 
ues taking place in them, and referring mainly to buildings, 
real estate, etc., they cannot be discussed without an under- 
standing of the theory of ground rent, and do not belong in 



The Eifect of Fluctuations in Price. 135 

this chapter, for this reason. But they have a general im- 
portance for the question of depreciation. 

There are, in the first place, constant improvements which 
lower relatively the use-value, and therefore the exchange- 
value, of existing machinery, factory equipments, etc. This 
process has a dire effect especially during the first epoch of 
newly introduced machinery, before it has reached a certain 
stage of maturity, when it becomes continually antiquated 
before it has had time to reproduce its own value. This is 
one of the reasons for the irrational prolongation of the work- 
ing time customary at such periods, of working with day and 
night shifts, in order that the value of the machinery may be 
reproduced in a shorter time without having to place the fig- 
ures for wear and tear too high. On the other hand, if a 
short period of effectiveness of machinery (its short term of 
life compared to anticipated improvements) is not compen- 
sated in this way, then it yields too much of its value to the 
product by moral wear, so that it cannot compete even against 
hand-labor. ^^ 

When machinery, equipment of buildings, and fixed capital 
in general have reached a certain maturity, so that they re- 
main unaltered in their basic construction, at least for an or- 
dinary length of time, then a similar depreciation takes place 
in consequence of improvements in the methods of reproduc- 
tion of this fixed capital. The value of machinery, etc., falls 
in that case, not because this machinery is rapidly crowded 
out and depreciated to a certain degree by new and more pro- 
ductive machinery, etc., but because it can be reproduced more 
cheaply. This is one of the reasons why large enterprises fre- 
quently do not flourish until they pass into the second hand, 
after their first proprietors have been bankrupted, so that 
their successors, who buy them cheaply, are enabled to begin 
with a smaller investment of capital at the very outset. 

In the case of agi'iculture it is evident that the same 
causes which raise the price of the product or lower it must 
also raise or lower the value of capital, since this capital con- 

*^ For illustrations see Babbage, among others. The usual expedient, a reduction 
of wages, is employed also in this instance, and so this continual depreciation 
works out quite contrary to the dreams of the harmonious brain of Mr. Carey. 



136 Capitalist Production. 

sists to a large degree of this product, such as grain, cattle, 
etc. 



There still remains the variable capital for our considera- 
tion. 

To the extent that the value of labor-power rises on ac- 
count of a rise in the price of the means of existence required 
for its reproduction, or falls on account of a reduction of the 
value of these means of existence -»— and a rise or fall in the 
value of variable capital are but expressions of these two 
cases — a rise in surplus-value corresponds to such deprecia- 
tion and a fall in surplus-value to such appreciation, assum- 
ing the length of the working-day to remain the same. But 
other circumstances — a release or tie-up of capital — may- 
accompany such cases, and as we did not analyse them so far, 
w^e may briefly mention them now. 

If wages fall in consequence of a depreciation of the value 
of labor-power (which may be accompanied even by a rise in 
the actual price of labor), then a portion of the capital hith- 
erto invested in w^ages, is released. Variable capital is set 
free. For new investments of capital, this signifies a working 
with a higher rate of surplus-value. It takes less money than 
before to set in motion the same amount of labor, and in this 
way the unpaid portion of labor increases at the expense of 
the paid portion. But in the case of already invested capital 
not only the rate of surplus-value is raised, but a portion of 
the capital previously invested in wages is also released. It 
had been tied up until this time and formed a regailar portion 
which had to be deducted from the proceeds of the product 
and advanced for wages, in order to perform the functions of 
variable capital, provided the business was to continue on its 
former scale, '^ow this portion becomes disposable and may 
be used for a new investment, either in the extension of the 
same business, or to perform a function in some other sphere 
of production. 

Let us assume, for instance, that 500 p.st. were required at 
first to employ 500 laborers per week, and that noAV only 400 
p.st. are needed for the same purpose. If the mass of value 



The Eifect of Fluctuations in Price. 137 

produced in either case was 1,000 p.st., then the mass of sur- 
pkis-value produced per week in the first case was 500 p.st., 
and the rate of surplus-value f-g-g-, or 100%. But after the 
reduction of wages the mass of surplus-value will be 1,000 — 
400, or 600 p.st., and its rate fl-g-, or 150%. And this rais- 
ing of the rate of profit is the only effect produced for any 
one who starts a new enterprise in this sphere of production 
with a variable capital of 400 p.st. and a corresponding con- 
stant capital. But in a business already existing when this 
takes place, the depreciation of the variable capital does not 
only increase the rate of surplus-value from 500 to 600 p.st., 
and the rate of surplus-value from 100 to 150%, but 100 p.st. 
of the variable capital are released and enabled to exploit more 
labor. The same amount of labor is then not alone advan- 
tageously exploited, but the release of 100 p.st. makes it pos- 
sible to exploit more laborers with those 500 p.st. at the in- 
creased rate. 

^ow take the opposite case. Take it that the original pro- 
portion of division, with 500 laborers, was 400 v -|- 600 s, 
making 1,000, so that the rate of surplus-value was 150%. 
The laborer, in that case, received f p.st., or 16 shillings per 
week. ISTow, if in consequence of an appreciation of variable 
capital 500 laborers cost 500 p.st. per week, then each one 
of them will receive 1 p.st. per week, and 400 p.st. can employ 
only 400 laborers. If the same number of laborers as before 
is to be employed, then we must have 500 v -f- 500 s, or 1,000. 
The rate of surplus-value would have fallen from 150 to 
100%, which is by one-third. If some new capital were now 
to be invested, the only effect felt by it would be this lower 
rate of surplus-value. Other circumstances remaining the 
same, the rate of profit would also have fallen, although not to 
the same extent. Tor instance, if c equals 2,000, we should 
have in the one case 2,000 c + 400 v + 600 s =, 3,000. The 
rate of surplus-value would be 150%, the rate of profit -^Vo"» 
or 25%. In the second case we should have 2,000 c + 500 v 
-\- 500 s =. 3,000. The rate of surplus-value would be 100 %>, 
the rate of profit y/otTj oi' 20%. However, for a capital al- 



138 Capitalist Production. 

ready invested there would be a twofold effect. Only 400 la- 
borers could be employed with 400 p.st., at a rate of surplus- 
value amounting to 100%. They would then produce only 
400 p.st. of surplus-value. Furthermore, since a constant 
capital of 2,000 p.st. requires 500 laborers for its operation, 
400 laborers could operate only a constant capital of 1,600 
p.st. If production is to continue on the same scale as be- 
fore and one-third of the machinery prevented from remaining 
idle, then the variable capital must be increased by 100 p.st., 
in order that 500 laborers may still be employed. And this 
can be accomplished only by tying up a hitherto disposable 
capital, so that a portion of the accumulation intended for an 
extension of production serves then merely for stopping a gap, 
or a portion reserved for revenue is added to the old capital. 
A variable capital increased by 100 p.st. produces then 100 
p.st. less of surplus-value. More capital is required to em- 
ploy the same number of laborers, and the surplus-value 
yielded up by each laborer is at the same time reduced. 

The advantages resulting from a release, and the disadvan- 
tages resulting from a tie-up of variable capital, affect only 
capital already engaged and reproducing itself under certain 
determined conditions. So far as newly invested capital is 
concerned, the advantage on the one, or the disadvantage on 
the other side, are limited to a raising or lowering of the rate 
of surplus-value and a variation of the rate of profit accord- 
ingly, if not always in the same proportion. 

The release and tie-up of variable capital, analysed in the 
foregoing, is the result of a depreciation or appreciation of 
the elements of variable capital, that is to say, of the cost 
of reproduction of labor-power. However, variable capital 
might also be released, if the development of the productivity, 
with the rate of wages unchanged, results in the possibility of 
getting along with fewer laborers for the operation of the 
same amount of constant capital. Vice versa, additional vari- 
able capital may be formed, if the productive power declines 
and more laborers are needed to operate the same mass of con- 
stant capital. On the other hand, if a portion of capital for- 
merly employed in the capacity of variable capital is trans- 



The Effect of Fluctuations in Price. 139 

ferred to the constant capital, so that there is merely a different 
distribution between the components of the same capital, this 
has its influence on the rate of surplus-value and of profit, but 
does not belong in this discussion of the release and tie-up of 
capital. 

We have already seen that constant capital may be released 
or tied up by a depreciation or appreciation of its component 
elements. Aside from this, it can be tied up only in the case 
that the productive power of labor increases (not to mention 
the case in which a portion of the variable is transferred to the 
constant capital), so that the same amount of labor creates a 
greater product and therefore operates a larger constant cap- 
ital. The same may occur under certain circumstances when 
the productive power decreases, for instance in agriculture, 
so that the same quantity of labor requires more means of 
production, such as seeds, manure, drainage, etc., in order 
to produce the same output. Constant capital may be re- 
leased without depreciation, when improvements, the harness- 
ing of natural powers, etc., enable a constant capital of smaller 
value to perform the same technical services as those formerly 
performed by a constant capital of greater value. 

We have seen in volume II that once that the commodi- 
ties have been converted into money, sold, a certain portion 
of this money must be reconverted into the material elements 
of constant capital, and this in proportion to the technical na- 
ture of any given sphere of production. In this respect, the 
most important element in all lines — aside from wages, or 
variable capital — is the raw material, including the auxiliary 
substances, which are particularly important, in all lines of 
production that do "not use any raw materials in the strict 
meaning of the term, for instance in mining and extractive 
industries in general. That portion of the price which has to 
make good the wear and tear of machinery plays mainly an 
ideal role in calculation, so long as the machine is at all in 
workable condition. It does not matter greatly whether it is 
paid and replaced by money to-day or to-morrow, or in any 
other section of the period of tum-over of the capital. It is 
different with the raw material. If the price of raw material 



140 Capitalist Production. 

rises, it may be impossible to make it good fully out of the 
price of the commodities after deducting the wages. Violent 
fluctuations of price therefore cause interruptions, great col- 
lisions, or even catastrophies in the process of reproduction. 
It is especially the products of agriculture, raw materials 
taken from organic nature, which are subject to such fluctua- 
tions of value in consequence of changing yields, etc., leaving 
aside altogether tlie question of the credit-system, for the pres- 
ent. The same quantity of labor may, in consequence of un- 
controllable natural conditions, the favor or disfavor of sea- 
sons, etc., be incorporated in very different quantities of 
use-values, and a definite quantity of these use-values may 
have very different prices. If the value x is represented by 
100 lbs. of the commodity a^ then the price of one lb. of a 
equals ^. If it is represented by 1,000 lbs., the price of 
one lb. is j^ , etc. This is one of the elements in the fluctu- 
ations of the price of raw materials. A second element, which 
is mentioned at this point only for the sake of completeness, 
since competition and the credit-system are still outside of the 
scope of our analysis, is this : It is in the nature of the thing 
that vegetable and animal substances, which are dependent on 
certain laws of time for their growth and production, cannot 
be suddenly augmented in the same degree as, for instance, 
machines and other fixed capital, or coal, ore, etc., whose aug- 
mentation, assuming the natural requirements to be present, 
can be accomplished in a very short time in an industrial 
country. It is therefore impossible, and under a developed 
system of capitalist production even inevitable, that the pro- 
duction and augmentation of that portion of the constant cap- 
ital which consists of fixed capital, machinery, etc., should 
run ahead of that portion which consists of organic raw ma- 
terials, so that the demand for these last materials gTows more 
rapidly than their supply, and their price rises in consequence. 
This rising of prices carries with it the following results: 1) 
A shipping of raw materials from great distances, seeing that 
the rising price covers greater freight rates; 2) an increase 
in their production, which, however, for natural reasons, will 
not be felt until the following year; 3) a using up of various 



The Eifect of Fluctuations hi Price. 141 

hitherto uimsed accessories, and a better economising of waste. 
If this rise of prices begins to exert a marked influence on 
production and supply, the turning point has generally ar- 
rived at which the demand lets up on account of the protracted 
rise of the raw material and of all commodities made up of 
it, so that a reaction in the price of raw material takes place. 
Aside from convulsions due to the depreciation of capital in 
various forms, this reaction is also accompanied by other cir- 
cumstances which will be mentioned immediately. 

So much is evident from the foregoing: To the extent that 
capitalist production is developed, and with it the means of 
suddenly and permanently increasing that portion of the con- 
stant capital which consists of machinery, etc., and to the ex- 
tent that accumulation is accelerated (as it is particularly in 
times of prosperity), to that extent does the relative over- 
production of machinery and other fixed capital increase, the 
relative underproduction of vegetable and animal raw mate- 
rials become more frequent, the above described rise of their 
prices and the subsequent reaction more marked. And the 
revulsions increase correspondingly in frequency, so far as 
they are due to this violent fluctuation of one of the main 
elements of the process of reproduction. 

ISTow, if these high prices collapse, because their rise had 
caused partly a falling off in the demand, partly an extension 
of production here, an importation of goods from remote and 
hitherto little noted or neglected regions of production in an- 
other place, and with them an excess of the supply over the 
demand, especially if this excess comes in with the old prices, 
then we have a result which offers various points of view. 
The sudden collapse of the price of raw materials checks their 
reproduction, and consequently the monopoly of the original 
producing countries, which are favored by the best conditions, 
is restored. It may be restored with certain limitations 
but still it is restored. The reproduction of the raw mate- 
rials proceeds indeed, after the first impulse has been given, 
on an enlarged scale, especially in countries which have more 
or less of a monopoly of this production. But the basis on 
which production takes place after the extension of machin- 



142 Capitalist Production. 

ery, etc., and which, after some fluctuations, has to serve as 
the new point of departure, is very much enlarged by the 
occurrences of the last cycle of turn-over. At the same time 
the barely increased reproduction has been considerably 
checked in the secondary countries of supply. For instance, 
it can be easily shown by a reference to the export tables that, 
during the last thirty years (up to 1865) the production of 
cotton grows in India, whenever there has been a falling off 
in the American, and that there is after awhile a sudden drop 
and falling off in the Indian. During the period in which 
raw materials are high, the industrial capitalists get together 
in associations for the purpose of regulating production. So 
they did, for instance, after the rise of cotton prices in 1848, 
in Manchester, and a similar move was made in the production 
of flax in Ireland. But as soon as the immediate impulse 
has worn off, and the principle of competition reigns once 
more supreme, according to which one must " buy in the 
cheapest market " (instead of stimulating production in the 
most favored countries, as those associations attempt to do, 
without regard to the monetary price at which those countries 
may just happen to supply their product), the regulation of 
the supply is left once more to " prices." All thought of a 
common, far-reaching, circumspect control of the production 
of raw materials gives way once more to the belief that de- 
mand and supply will mutually regulate one another. And 
it must be admitted that such a control is on the whole ir- 
reconcilable with the laws of capitalist production, and re- 
mains for ever a platonic desire, or is limited to exceptional 
co-operation in times of great stress and helplessness.^® The 

^^ Since the above was written (1S65), competition on the world-market has 
been considerably intensified by the rapid development of industry in all civilized 
countries, especially in America and Germany. The fact that the rapidly and 
enormously growing productive forces grow beyond the control of the laws of 
the capitalist mode of exchanging commodities, inside of which they are supposed 
to move, this fact impresses itself nowadays more and more even on the minds 
of the capitalists. This is shown especially by two symptoms. First, by the new 
and general mania for a protective tariff, which differs from the old protectionism 
especially by the fact that now the articles which are capable of being exported 
.are the best protected. In the second place it is shown by the trusts of manu- 
facturers of whole spheres of production for the regulation of production, and 
thus of prices and profits. It goes without saying that these experiments are 
practicable only so long as the economic weather is relatively favorable. The 



The Effect of Fluctuations in Price. 143 

superstition of the capitalists in this respect is so crude that 
even the factory inspectors lift their hands in surprise, in 
their reports. The variation of good and bad years, of course, 
leads at times to the production of cheaper rav/ materials. 
Aside from the direct effect of this on the extension of the de- 
mand, an added stimulant is found in the previously men- 
tioned influence on the rate of profit. Thereupon the afore- 
said process of a gradual overtaking of the production of 
raw materials by that of machinery, etc., is repeated on a 
larger scale. An actual improvement of raw materials in 
such a way that not only their quantity, but also their qual- 
ity would come up to expectations, for instance supplying 
cotton of American quality from Indian fields, would neces- 
sitate a long continued, progressively growing, and steady 
European demand (quite aside from the economic conditions 
under which the Indian producer labors in his country). As 
it is, the sphere of production of raw materials is extended 
only convulsively, being now suddenly enlarged, and then vio- 
lently contracted. All this, and the spirit of capitalist pro- 
duction in general, may be very well studied in the cotton 
crisis of 1861-65, which was further aggravated by the 
fact that raw materials were at times entirely missing which 
are one of the j)rincipal factors of reproduction. The price 
may also rise while there is an abundant supply, namely in 
the case that this abundance takes place under difficult condi- 
tions. Or, there may be an actual shortage of raw material. 
It was the last condition which originally prevailed in the 
cotton crisis. 

The closer we approach in the history of production to our 
own times, so much more regularly do we find, especially in 
the essential lines of industry, the ever recurring fluctuation 
between a relative appreciation and the resulting depreciation 
of raw materials purloined from organic nature. The pre- 
ceding statements will be verified by the following illustra- 
tions from reports of factory inspectors. 

first storm must upset them and prove, that, although production assuredly needs 
regulation, it is certainly not the capitalist class which is fitted for that task. 
Meanwhile the trusts have no other mission but to see to it that the little fish 
are swallowed by the big fish still more rapidly than before. — F. E. 



144 Capitalist Production. 

The moral of this story, which may also be deduced from 
other observations in agriculture, is that the capitalist sys- 
tem works against a rational agriculture, or that a rational 
agriculture is irreconcilable with the capitalist system, al- 
though technical improvements in agriculture are promoted 
by capitalism. But under this system, agriculture needs 
either the hands of the self-employing small farmer, or the 
control of associated producers. 



We present now the following illustrations from the Eng- 
lish factory reports. 

According to R. Baker, factory reports for October, 1858, 
pages 56-61, the condition of business was then better. But 
the cycle of good and bad times was shortened with the in- 
crease of machinery, and to the extent that the demand for 
raw materials increases, the fluctuation in the conditions of 
business occur more frequently. For the time being confi- 
dence had been restored after the panic of 1857, and the panic 
itself seemed almost forgotten. Whether this improvement 
would be lasting, depended, in Baker's opinion, to a large ex- 
tent on the price of raw materials. He saw indications that 
the maximum had already been reached, beyond which manu- 
facture becomes less and less profitable, and finally ceases al- 
together to yield any profits. Taking the prosperous years in 
the worsted business, 1819 and 1850, it will be seen that the 
price of English carded wool was 13 d., and of Australian, 
14 to 17 d. per lb., and that the average price of English 
wool, for the decade from 1841 to 1850, never exceeded 14 d., 
nor that of Australian 17 d. But at the beginning of the 
disastrous year 1857, Australian wool was quoted at 23 d. 
It fell in December, at the time of the worst panic, to 18 d., 
but rose once more in' the course of the year 1858 to 21 d. 
English wool likewise began in 1857 with 20 d., rose in April 
and September to 21 d., fell in January, 1858 to 14 d., and 
rose subsequently to 17 d., so that it stood 3 d. per lb. higher 
than the average of the aforementioned 10 years. This 
shows, in Mr. Baker's opinion, that either the failures of 
1857, which were due to similar prices, have been forgotten, 



The Effect of Fluctuations in Price. 



'•45 



or that barely enough wool is produced to keep the existiup^ 
spindles running. Or the prices of fabrics may experience 
a lasting rise. But he has seen in his experience that spin- 
dles and frames multiplied in an incredibly short time, not 
only in numbers, but also in speed; that the English wool 
export to France rose at almost the same rate^ while the aver- 
age age of sheep in England and other countries was steadily 
reduced, since the population was rapidly increasing and 
breeders were trying to turn their stock into money as quickly 
as possible. He often was seriously alarmed, when he saw 
people, ignorant of these facts, invest their ability and their 
capital in enterprises whose success depended on the supply 
of a product which can be increased only according to certain 
organic laws. The conditions of supply and demand of all 
raw materials seems to explain to Mr. Baker many fluctua- 
tions in the cotton business as well as the condition of the 
English wool market in the fall of 1857 and the subsequent 
commercial crisis, ^^ 

The most flourishing time of the worsted industry of the 
West-Biding of Yorkshire was from 1849 to 50. This in- 
dustry employed 29,246 persons in 1838, 37,000 persons in 
1843, 48,097 in 1845, 74,891 in 1850. (Factory Beports, 
1850, page 60.) This prosperity of the carded wool industry 
began to excite certain forebodings in October, 1850. In his 
report for April, 1851, sub-inspector Baker says in regard to 
Leeds and Bradford, that the condition of business is very un- 
satisfactory. The carded wool spinners are rapidly losing 
the profits of 1850, and the majority of the weavers do not 
make much progress. He believes that more wool machinery 
is momentarily standing idle than ever before, and the flax 
spinners are likewise discharging laborers and stopping ma- 
chinery. The cycles of the textile industry are very uncer- 
tain, and he thinks that people will soon realise that no pro- 
portion is observed between the productivity of the spindles, 
the quantity of raw materials, and the increase of population. 
(Page 52.) 

" It goes without saying that we do not, with Mr. Baker, explain the wool 
crisis of 1857 out of the disproportion between the raw material and the product. 
This disproportion was itself but a symptom, and the crisis was general. — F. E. 

J 



146 Capitalist Production. 

The same is true of the cotton industry. In the same report 
for October, 1858, we read that, since the fixing of the hours 
of labor in factories, the amounts of raw material consumed, 
of production, and of wages in all textile industries have been 
reduced to a simple rule of three. The inspector quotes from 
a recent lecture by Mr. Payns, who was then mayor of Black- 
bum, on the cotton industry, in which the industrial statistics 
of that region were very accurately co^npiled. The mayor 
said in substance that every actual horse-power operates 4-50 
self-actor spindles with preparatory spinning machinery, or 
200 throstle spindles, or 15 looms for cloth 40 inches wide, 
with machinery for reeling, warping and smoothing. Every 
horse-power employs two and a half laborers in spinning, or 
10 in weaving. Their average wages are fully 10^ shillings 
per capita per week. The worked up average numbers are 
IsTos. 30-32 for the warp and Nos. 34-36 for the woof. As- 
suming the product of one week's spinning to be 13 ounces per 
spindle, the weekly output of yarn would be 824,700 lbs., 
which imply a consumption of 970,000 lbs., or 2,300 bales 
of cotton valued at 28,300 p.st. In a circle of five miles 
around Blackburn the weekly consumption of cotton amounted 
to 1,530,000 lbs., or 3,650 bales, at a cost-price of 44,625 p.st. 
This is one-eighteenth of the entire cotton spun in the United 
Kingdom, and one-sixteenth of the entire mechanical weav- 
ing. 

The inspector says that according to the calculations of 
Mr. Payns the total number of cotton spindles in the United 
Kingdom would be 28,800,000, and it would require 1,432,- 
080,000 lbs. of cotton to keep them going at full speed. But 
the cotton imports, after deducting the exports, amounted in 
1856 and 1857 only to 1,022,576,832 lbs. so that there must 
have been a shortage of 409,503,168 lbs. Mr. Payns, who 
had the kindness to discuss this point with the inspector, held 
that a computation of the annual consummation of cotton, based 
on the consumption of the Blackburn district, would total up 
too high, on account of the difference, not only of the num- 
bers spun, but also of the excellence of the machinery. He 
estimated the total consumption of cotton per year in the 



The Effect of Fhictuations in Price. 147 

United Kingdom at 1,000 million lbs. But if lie is correct, 
and there is actually a surplus-import of 22| million lbs., 
then the inspector thinks that demand and supply are nearly 
balanced, without taking into account the additional spindles 
and looms which are about to be erected in Mr. Payns' own 
district, according to him, and the same applies probably to 
other districts as well. (Pages 59, 60.) 



III. Oeneral Illustration. The Cotton Crisis of 1861-1865. 
Preliminary History, 18^5-1860. 

1845. Prosperity of cotton industry. Price of cotton very 
low. L. Horner says on this point that he has not witnessed 
a more active period of business than that of the last sum- 
mer and fall. Especially in the spinning of cotton. Through- 
out the entire six months he received every week reports of 
new investments of capital in factories. ]Srow new factories 
were being built, now the few vacant ones had found new 
renters, now factories which were in operation were extended^ 
new and stronger steam engines installed and more working 
machinery added. (Factory Reports, November, 1845, page 

1845. The complaints are beginning. Por some time the 
inspector hears general complaints among the manufacturers 
over the depressed state of their business. During the last 
six weeks, he says, various factories have begun working 
short time, generally 8 hours instead of 12. This seemed to 
become general. There had been a great rise in the price of 
cotton, while the price of the products had not alone not 
risen, but fallen to a lower figure than that before the rise in 
cotton. The great increase in the number of cotton factories 
during the preceding four years must have caused a strong 
increase in the demand for raw material and a large supply 
of products on the market. Both of these things must have 
operated to depress profits, so long as the supply of raw ma- 
terial and the demand for the product remained unchanged. 
But they actually had a far stronger influence, because the 
supply of cotton had recently been insufficient, and the de- 



148 Capitalist Productiojt. 

mand for the product had let up in various inland and foreign 
markets. (Factory Reports, December, 1846, page 10.) 

The rising demand for raw materials went, of course, hand 
in hand with the overstocking of the market with products. 
By the way, at that period the expansion of industry and the 
subsequent stagnation were not confined to the cotton dis- 
tricts. The carded wool district of Bradford contained in 
1836 only 318 factories, but 490 in 1846. And these figures 
do not by any means express the actual extension of produc- 
tion, since the existing factories were at the same time con- 
siderably enlarged. This was especially true of the flax mills. 
According to the factory report, ISTovember, 1846, page 30, 
all of them had contributed more or less, during the preceding 
10 years, to that overstocking of the market which was to 
blame for the stagnation of business at the time being. The 
depression in business followed naturally after such a rapid 
expansion of factories and machinery. 

1847. In October, a money panic. Discount 8%. This 
was preceded by a collapse of railroad speculation, and of 
jobbing with East-Indian bills of exchange. 

The factory report for October, 1847, page 30, states that 
Mr. Baker presented very interesting details concerning the 
rise in the demand for cotton, wool, and flax, in recent years, 
caused by the expansion of these industries. He held that the 
increased demand for these raw materials, particularly at a 
time when their supply had fallen far below the average^ was 
sufiicient to explain the prevailing depression in those lines 
of business, without reference to the insecurity of the money- 
market. This view was fully supported by the personal ex- 
perience of the writer of the report, and by statements made 
to him by experts in business. All these various lines of 
business had been very much depressed, when discounts were 
still practicable at 5% and less. On the other hand, the sup- 
ply of raw silk was abundant, prices reasonable, and the busi- 
ness correspondingly brisk until a few weeks previously, when 
doubtless the money-panic affected not only the dealers in raw 
silk, but still more their principal customers, the manufac- 
turers of custom made goods. A glance at the published offi- 



The Effect of Fluctuations in Price. 149 

cial reports showed that tlie cotton industry liad increased by 
almost 2Y% during the preceding three years. As a result, 
cotton had risen in round figures from 4 d. to 6 d. per lb., 
while yarn, thanks to the increased supply, stood only a trifle 
above its former price. The wool industry commenced to 
expand in 1836. Since then it had grown by 40% in York- 
shire, and still more in Scotland. The increase in the worsted 
industry was still larger. ^^ The calculations showed in its 
case, for the same length of time, an expansion of more than 
74%. The consumption of raw wool had, therefore, been 
very large. The linen industry showed since 1839 an in- 
crease of about 25% in England, 22% in Scotland, and al- 
most 90% in Ireland,^^ the consequence of this, and of the 
failure of flax crops, was that the price of the raw material 
rose by 10 p.st. per ton, while the price of yarn had fallen by 
6 d. per bundle. 

1849. Beginning with the last months of 1848, business 
revived. According to factory reports, 1849, pages 30, 31, 
the price of flax, which was so low that it guaranteed a reason- 
able profit under all possible future circumstances, induced 
manufacturers to push their business steadily. The w^ool 
manufacturers were very busy for a time in the beginning of 
the year. The waiter of the report feared, however, that 
consignments of woolen goods often took the place of real de- 
mand, and that periods of seeming prosperity, that is to say, 
of full employment, did not always coincide with periods of 
legitimate demand. The worsted business was particularly 
good for some months. In the beginning of this period, wool 
stood especially low. The mill-owners had stocked them- 
selves at advantageous prices, and no doubt in considerable 
quantities. When the price of wool rose with the spring auc- 
tions, the mill-o^^^lers had the advantage, and they retained 
it, since the demand for goods became strong and irresistible. 

^* A careful distinction is made in England between the woollen manufacture, 
which spins carded yarn from short wool and weaves it (main centre Leeds), and 
the worsted manufacture, which makes worsted yarn from long wool and weaves 
it (main seat Bradford, in Yorkshire). — F. E. 

" This rapid expansion of the manufacture of linen yarn by machinery, in 
Ireland, gave ' the death-blow to the exportation of the linen made of hand-made 
yarn in Germany (Silesia, Lusatia, and Westphalia). — F. E. 



150 Capitalist Production. 

On page 42 of the factory report for April, 1849, we read 
tliat, considering the fluctuations in the conditions of business, 
which had taken place in the factory districts for three or 
four years, it must be admitted that there is somewhere some 
gTeat disturbing cause. May not the productive power of 
the increased machinery have become a new element? 

In JSi'ovember, 1848, in May, summer, and up to October, 
1849, business became more and more flourishing. The same 
report states on pages 42 and 43, that this applies particu- 
larly to the manufacture of goods from worsted yarn, which 
centers in Bradford and Halifax, xit no previous time did 
this business approximate the extension which it had then. 
The speculation in raw materials, and the uncertainty of its 
probable supply, has always caused greater excitement and 
more frequent fluctuations in the cotton industry than in any 
other line of business. For the time being there was an ac- 
cumulation of supplies of the coarser gTades of cotton goods, 
which worried the small mill-owners and placed them at a 
disadvantage, so that some of them were Avorking short time. 

1850. April. Business continued brisk. Exception, ac- 
cording to factory report, April, 1850, page 54: There is a 
great depression in a portion of the cotton industry as a re- 
sult of insufiicient supplies of raw material precisely for 
coarse grades of yarn and heavy textures. It is feared that 
the increased machinery lately installed in the worsted busi- 
ness may bring about a similar reaction. Mr. Baker calcu- 
lates that alone in the year 1849, the product of the looms in 
this business has grown by 40%, and that of the spindles by 
25 to 30%, and the expansion is still continuing at the same 
rate. 

1850. October. The factory report for October states on 
page 15 that the price of cotton continues to cause considera- 
ble depression in this line of industry, especially for such 
goods as require a considerable portion of the cost of produc- 
tion to be spent for raw material. The great rise in the price 
of raw silk has led to an aggravation of the situation in many 
instances, also in this line. And on page 33 of the same re- 
port we learn that the committee of the Koyal Association for 



The Eifect of Fluctuations in Price. 151 

Hax Culture in Ireland was of the opinion that the high price 
of flax, together with the low level of prices of other agricul- 
tural products, had safeguarded a considerable increase in the 
production of flax for the ensuing year. 

1853. April. Great prosperity. L. Horner says in the 
factory report for April, 1853, page 19, that at no time dur- 
ing the 17 years, in which he took official notice of the con- 
dition of the factory districts of Lancashire, has he seen such 
general prosperity. The activity in all lines was extraor- 
dinary. 

1853. October. Depression in the cotton industry. 
Overproduction. (Factory Report, October, 1853, page 15.) 

1854. April. The factory report for 1854, page 37, 
states that the wool business, while not brisk, furnished full 
employment for all factories. The same held good of the 
cotton industry. The worsted business was irregular through- 
out the entire preceding half year. There was a disturbance 
in the linen industry in consequence of the reduced supply of 
flax and hemp from Russia, on account of the war in the 
Crimea. 

1859. According fo the factory report for April, 1859, 
page 19, business was still depressed in the Scotch linen in- 
dustry, because the raw material was scarce and dear. The 
low quality of the preceding crop in the Baltic countries, from 
which came the main supply, was expected to exert an inju- 
rious influence on the business of this district. On the other 
hand, jute, which displaced flax for many coarse goods, was 
neither uncommonly dear nor scarce. About one-half of the 
machinery in Dundee was spinning jute. The factory re- 
port for October, 1859, states on page 30, that in consequence 
of the high price of raw material, flax spinning is not yet 
profltable, and while all other factories are running on full 
time, there are various instances of idle flax machinery. The 
jute mills are in a satisfactory condition, since recently this 
material has fallen to a reasonable figure. 



152 Capitalist Production. 

1861-61)-. American Civil War. Cotton Famine. The 
Greatest Illustration of an Interruption in the Process of 
Production through Scarcity and Deamess of Raw Mate- 
rial. 

1860. April. The reporting inspector sajs in substance 
in factory report, April, 1860: I am pleased to be able to 
inform yon that, in spite of the high price of raw materials, 
all textile industries, with the exception of silk, have been 
well employed during the last half year. In . some of the 
cotton districts, laborers were advertised for, and secured by 
immigration from Il^orfolk and other rural counties. There 
seems to be a great lack of raw materials in all branches of 
industry. It is alone this lack which holds us back. In the 
cotton business, the number of factories erected, the exten- 
sion of already existing ones, and the demand for laborers, 
has probably never been so great. Eaw materials are sought 
on all sides. 

1860. October. The factory report for October, 1860, 
states on page 37, that the condition of business in the cotton, 
wool, and flax districts has been good. It is reported to have 
been very good in Ireland, for more than a year, and would 
have been still better but for the high price of raw materials. 
The flax mills seem to be waiting with more impatience than 
ever for the opening of the resources of India by railroads, 
and for a corresponding development of its agriculture, in 
order to secure at last a sujDply of flax sufficient for their re- 
quirements. 

1861. April. The factory report for April, 1861, states 
on page 33 that the condition of business for the time being 
was depressed. A few cotton goods factories were working 
short time, and many silk factories were nmning only a part 
of the time. Eaw materials were dear. In almost every tex- 
tile branch raw materials were quoted above the price at which 
they could be worked by the mass of the consumers. 

It now became evident that the cotton industry had pro- 
duced too much in 1860. The effect of this made itself felt 
for the next few years. The factory report for December, 
1863, page 127, states that it took between two and three years 



The Eifect of Fluctuations in Price. 153 

for the world-market to absorb the overproduction of 1860. 
And the factory report for October, 1862, pages 28 and 29, 
says in so many words : The depressed condition of the mar- 
kets for cotton goods in Eastern Asia, in the beginning of 1860, 
had a corresponding influence on the business in Blackburn, 
where on an average of 30,000 mechanical looms are almost 
exclusively engaged in the production of goods for this market. 
The demand for labor was, therefore, already restricted at 
this point many months before the effects of the blockade 
made themselves felt. Fortunately, many factories were 
thereby saved from ruin. The supplies rose in value so long 
as they were held in stock, and this prevented the appalling 
depreciation which is otherwise inevitable in such a crisis. 

1861. October. According to the factory report for Octo- 
ber, 1861, page 19, the business has been depressed for some 
time. It is not at all improbable that many factories will 
materially reduce their working time during the winter 
months. However, this was to be anticipated; quite aside 
from the causes which have interrupted the ordinary supply 
of cotton from America and the English exports, it would have 
been necessary to reduce the hours of labor during the com- 
ing winter, on account of the strong increase of production in 
the preceding three years, and the disturbance of the Indian 
and Chinese markets. 

Cotton Waste. East Indian Cotton. (Surat.) Influence on 
the Wages of Laborers. Improvement of Machinery. 
Substitution of Starch Flour and Minerals for Cotton. 
Effect of this Starch Flour Ingredient on the Laborers. 
Manufacturers of Fine Grades of Yarn. Fraud on the 
Part of the Manufacturers. 

An inspector writes in the factory report for October, 1863, 
page 63 : A manufacturer thinks that, so far as the estimate 
of the cotton consumption per spindle is concerned, I did not 
sufficiently appreciate the fact that, when a cotton is dear, 
every manufacturer of ordinary yarns (say up to ]N"o. 40, 
mainly from 12 to 32) spins as fine grades as he possibly can, 
that is to say, he will spin ISTo. 16 instead of 12, or 22 instead 



154 Capitalist Production. 

of 16, etc. And the weaver who works up these fine yaiTis, 
will raise his calico to the regular weight by adding so much 
more glue. This expedient is now used to a shameful de- 
gree. I have it on good authority that there are ordinary 
shirtings for export weighing 8 lbs. per piece, of which 2 lbs. 
were glue. Textures of other kinds are often given as much 
as 50% of glue, so that that manufacturer does not lie by any 
means who boasts of becoming a rich man by selling his 
fabrics at less money per pound than he paid for the yarn of 
which they are made. 

We read furthermore in the same place: I have also been 
told that the weavers ascribe the growth of disease among 
themselves to the glue used in the woof of East-Indian Cotton 
and not merely consisting of flour, as heretofore. This sub- 
stitute for flour is said to have the very great advantage of in- 
creasing the weight of fabrics considerably, so that 15 lbs, of 
yarn, after being woven, weigh 20 lbs. (This substitute was 
ground talcum, called China clay, or gypsum, called French 
chalk.) The wages of the weavers (meaning the laborers) 
have been very much reduced by the employment of substi- 
tutes for flour in the malting of weaver's glue. This glue 
renders the yarn heavier, but also stiff and brittle. Every 
thread of the yam passes in the loom through the bobbin, whose 
strong threads keep the woof in position. The stifflly glued 
woof continually causes breaks in the thread of the bobbin. 
Every break causes a loss of five minutes to the weaver for 
repairs. The weavers have to repair such breaks ten times as 
often as formerly, and the loom naturally turns out so much 
less during working hours. (Pages 42 and 43.) 

In Ashton, Stalybridge, Oldham, etc., the working hours 
have been reduced by at least one-third, and are reduced still 
more every week. This reduction of the hours of labor is in 
many instances accompanied by a reduction of wages. (Page 
13.) In the beginning of 1861, a strike took place among 
the mechanical weavers in some parts of Lancashire. Several 
manufacturers had announced a reduction of wages by 5 to 
Y.5%. The laborers insisted that the scale of wages should 
be maintained and the hours of labor reduced. This was 



The Effect of Fluctuations in Price. 155 

not granted, and a strike was called. After one month, the 
laborers had to give in. But then they got both. Aside from 
a reduction of wages which the laborers finally accepted they 
also worked short time in many factories. (Factory Report, 
April, 1863, page 23.) 

1862. April. The sufferings of the laborers had consid- 
erably increased since the last report was made. But at no 
time in the history of this industry have so sudden and so 
grievous ills been borne with so much quiet resignation and 
such patient self-respect. (Factory Report, April, 1862, page 
10.) The proportion of the temporarily totally unemployed 
laborers does not seem to be much larger than in 1848, when 
there was an ordinary panic, which, however, was of suffi- 
cient force to induce the worried manufacturers to compile a 
similar statistics on the cotton industry as that now given out 
weekly. In May, 1848, 15% of all the cotton employes of 
Manchester were idle, 12% worked short time, while more 
than 70% worked on full time. On May 28, 1862, there 
were 15% idle, 35% working on short time, and 49% on full 
time. In the neighboring places, for instance at Stockport, 
the percentage of the idle and partly employed is higher, that 
of the fully employed lower, because coarser numbers are spun 
there than in Manchester. (Page 16.) 

1862. October. According to the last official statistics, 
there were in the United Kingdom 2,887 cotton factories, of 
which 2,109 were in the districts of Lancashire and Cheshire. 
The reporting inspector knew well enough that a very large 
number of the 2,109 factories in his district were small es- 
tablishments, which employed but a few laborers. But he 
was surprised when he found how large was the number of 
these. There were 392, or 19%, which had less than 10 
horse-power motors (steam or water) ; 345, or 16%, had be- 
tween 10 and 20 horse-powers; 1,372 had 20 horse-powers or 
more. A very large portion of the small manufacturers, more 
than one-third, had been laborers not very long ago. They 
are men without a command of capital. The main burden 
would fall upon the other two-thirds. (Factory Reports, 
October, 1862, pages 18, 19.) 



156 Capitalist Production. 

According to the same report, 40,146, or 11.3% of the cot- 
ton employes of Lancashire and Cheshire, were then working 
full time; 134,767, or 38%, were working a part of the time; 
197,721, or 50.7%, were unemployed. If we deduct from 
these figures the data referring to Manchester and Bolton, 
where mainly fine numbers were spun, a line little affected by 
the cotton famine, then the matter looks still more unfavora- 
ble, namely fully employed 8.5%, partly employed 38%, un- 
employed 53.3%. (Pages 19 and 20.) 

It makes an essential difference for the laborers whether 
good or bad cotton is worked up. In the first months of the 
year, when the manufacturers sought to keep their factories 
going by using up all the cotton bought at cheap prices, much 
bad cotton went into factories that usually worked only with 
good cotton. The difference in the wages of the laborers was 
so great that many strikes took place because no living wage 
could be made at the old piece wages. In a few instances the 
difference due to the employment of bad cotton amounted to 
one-half of the total wages, even at full time. (Page 27.) 

1863. April. In the course of this year, not more than 
about one-half of the cotton employes will work on full time. 
(Factory Report, April, 1863, page 14.) 

A very serious inconvenience in the employment of East- 
Indian cotton, such as the factories must use at this time, is 
that the speed of the machinery must be considerably reduced 
with it. During the last years, everything has been tried to 
increase the speed, so that the same machinery might do more 
work. However, the reduced speed hits the laborer as much 
as the manufacturer. For the majority of the laborers are 
paid by the piece, the spinners receiving so much per lb. of 
yarn spun, the weavers so much per piece woven. And even 
the others, who work on weekly wages, will suffer a reduction 
through the restriction of production. According to the re- 
searches of the inspector, and the data received by him, re- 
ferring to the wages of the cotton employes during the year, 
there is an average reduction of 20% in some cases as much 
as 50%, compared to the wages which were in vogue in 1861. 
(Page 13.) The amount earned depends on the quality of 



The Effect of Fluctuations in Price. 157 

the material worked up. The condition of the laborers, so 
far as earnings are concerned, is much better now (October, 
1863) than at the same time last year. The machinery has 
been improved, the raw material is better known, and the 
laborers overcome the difficulties better with which they had 
to struggle in the beginning. In the previous spring, the in- 
spector was in a sewing school in Preston (a charity institu- 
tion for unemployed). Two young girls, who had been sent 
to a weaving establishment on the strength of a promise that 
they would be able to make 4 shillings per week, asked to be 
readmitted to the school and complained that they could not 
make 1 shilling per week. The inspector has had information 
concerning self-acting minders, that is to say, men who operate 
a few self-actors, who had earned 8 sh. lid. after 14 days 
of full employment, and their house-rent was deducted from 
this sum. The manufacturer returned one-half of this rent 
to tliem as a gift. (How generous!) The minders carried 
home the amount of 6 sh. 11 d. In some places the self- 
acting minders earned from 5 to 9 sh. per week, the weavers 
from 2 to 6 sh. per week, during the last months of 1862. 
At the time of the report there was a healthier condition of 
things, although even then the earnings in most districts had 
decreased still more. Other conditions contributed to the 
scanty earnings, aside from the shorter staple of East-Indian 
cotton and its impurity. For instance, it had become the 
custom to mix plenty of cotton waste with the Indian cotton, 
and this increases, of course, the difficulties for the spinner. 
Owing to the shortness of the fiber, the threads break more 
easily in drawing out the mule and twisting the yarn, and the 
mule cannot be kept going so regularly. Furthermore, one 
girl frequently can watch but one loom, because she must pay 
more attention to the threads. But few of them have more 
than two looms. In many cases the wages of the laborers 
have been reduced by 5, Y.5, and 10%. In the majority of 
cases the laborer must handle his raw material as best he may, 
and try to make wages at the ordinary scale to the best of his 
power. Another difficulty with which the weavers have some- 
times to struggle is that they are supposed to make good 



158 Capitalist Production. 

fabrics out of bad materials, and are fined by deductions from 
their wages, if the work is not all that is desired. (Factory 
reports, October, 1863, pages 41-43.) 

Wages were miserable, even in places where full time was 
worked. The cotton employes willingly offered themselves for 
all public labors, drainage, road building, stone breaking, 
street paving, which they did in order to get their keep from 
the authorities (although this amounted practically to an as- 
sistance for the manufacturers. See volume I, chapter XXV, 
3.) The whole bourgeoisie stood guard over the laborers. If 
the worst of a dog's wages were offered, and the laborer re- 
fused to accept them, then the Assistance Committee struck 
him from their list. It was in a way a golden age for the 
manufacturers, for the laborers had either to starve or work 
at any price profitable for the bourgeois. The Assistance 
Committees acted as watch-dogs. At the same time the man- 
ufacturers, in secret agreement with the government, hin- 
dered emigration as much as possible, either for the purpose 
of having their capital, invested in the flesh and blood of la- 
borers, ready at hand, or of safeguarding the squeezing of rent 
out of the laborers. 

The Assistance Committees acted with great severity in this 
matter. If work was offered, the laborers to whom it was 
offered Avere stricken from the lists and compelled to accept. 
If they refused to begin work, the reason was that their earn- 
ings were but nominal, while the work was extraordinarily 
hard. (Page 97.) 

The laborers were willing to perform any work for which 
they were employed in consequence of the Public Work Acts. 
, The principles according to which industrial occupations were 
I assigned, varied considerably in different cities. But even 
in places where work in the open air was not absolutely re- 
garded as a labor test, this labor was either compensated with 
the bare ordinary charity sum, or so insignificantly better that 
it actually became a labor test. (Page 69.) The Public 
Works Act of 1863 was to remedy this evil and to enable the 
laborer to earn his wages as an independent day laborer. 
The purpose of this Act was threefold: 1) To enable local 



The Effect of Fhictuations in Price. 159 

authorities to borrow money from the loan treasury commis- 
sioners (with the consent of the president of the state's cen- 
tral poor boards; 2) to facilitate improvements in the cities 
of the cotton districts; 3) to secure work and remunerative 
■wages for the unemployed laborers. Up to the end of 1863, 
loans to the amount of 883,700 p.st. had been granted under 
this Act. (Page 10.) The enterprises started were mainly 
canalisation, road building, street paving, reservoirs for water 
works, etc. 

Mr. Henderson, president of the committee of Blackburn, 
wrote with reference to this to factory inspector Redgrave, 
that in his entire experience in the course of this period of 
suffering and misery nothing had struck him more emphat- 
ically or given him so much pleasure as the serene willingness 
with which the unemployed laborers of his district accepted 
the work offered to them by the city council of Blackburn 
pursuant to the Public Works Act. A greater contrast could 
hardly be imagined than that between the cotton spinner, who 
formerly worked as a skilled man in the factory, and the day- 
laborer, who now works in a depth of 14 or 18 feet on a drain- 
age canal. (They earned thereby about 4 to 12 sh. per week, 
according to the size of their families, and this last enormous 
amount had to provide sometimes for a family of eight. The 
gentlemen of the bourgeoisie derived a double profit from 
this. In the first place, they secured money for the improve- 
ment of their smoky and neglected cities at exceptionally low 
interest. In the second place, they paid wages to the labor- 
ers at a scale far below the ordinary. ) Mr. Henderson thinks 
that this ready willingness on the part of the laborers to ac- 
cept the offered employment implied great self-denial and 
consideration, and deserved all honor, since they were accus- 
tomed to an almost tropical temperature, to work in which 
skill and accuracy counted for more than muscular strength, 
and to wages which were double, or sometimes treble, of what 
they could earn now. In Blackburn the men were tried at 
all possible kinds of labor in the open air. They dug through 
a stiff and heavy clay soil to a considerable depth, they did 
drainage work, broke stones, built roads, made excavations 



i6o- Capitalist Production. 

for street canals to a depth of 14, 16, and sometimes 20 feet. 
Frequently tliey stood in mud and water from 10 to 12 inches 
deep, and tliey were exposed to a climate whose wet cold was 
not exceeded, or perhaps not equalled, in any other district of 
England. (Pages 91 and 92.) The attitude of the laborers 
has been almost faultless, their willingness to accept work in 
the oj)en air and to get along on it. (Page 69.) 

1864. April. Occasionally complaints about lack of la- 
borers are heard in various districts, especially in certain 
branches, for instance weaving. But these complaints are 
due as much to the low wages which the laborers may earn in 
consequence of the bad kinds of yarn as to an actual scarcity 
of laborers in this particular line. ISTumerous disputes over 
wages took place during the preceding month between some 
manufactm^ers and their laborers. The inspector regrets that 
strikes occurred far too frequently. The effect of the Public 
Works Act is now resented by the manufacturers as a com- 
petition, and as a result the local committee of Bacup has 
suspended its activity. Por although all the factories are not 
yet running, there has already been a lack of laborers. (Fac- 
tory Eeport, April, 1864, pages 9 and 10.) It was indeed 
high time for the manufacturers to act. In consequence of 
the Public Works Act the demand for laborers grew so much 
that many a factory hand was making 4 to 5 shillings per day 
in the quarries of Bacup. And so the public works were 
gradually suspended ; this new edition of the Ateliers nation- 
eaux of 1848, which had this time been opened in the interests 
of the bourgeoisie. 

Trying it on the Dog. 

Although the very reduced wages (of the fully employed), 
the actual earnings of the laborers in the different factories, 
have been given, it does not follow that they earn the same 
amount week after week. The laborers are exposed to great 
fluctuations at this place, in consequence of the continual ex- 
periments made by the manufacturers with different kinds and 
proportions of cotton and waste in the same factory. The 
" Mixtures," as they are called, are frequently changed, and the 



The Effect of Fluctuations in Price. i6i 

earnings of the laborers rise and fall with the quality of cotton 
mixtures. At times thej earned only 15% of their former 
wages, and in one or a couple of weeks wages fell to 50 or 
60%. Inspector Redgrave, who makes this report, then pro- 
ceeds to figures of wages selected from practical life. The 
following examples may suffice : 

A, weaver, family of 6 persons, employed 4 days in the 
week, 6 sh. 8.5 d. ; B, twister, 4.5 days per week, 6 sh. ; C, 
weaver, family of 4, 5 days per week, 5 sh. 1 d. ; D, slubber, 
family of 6, employed 4 days per week, Y sh. 10 d. ; E, weaver, 
family of Y, employed 3 days, 5 sh., etc. Eedgrave continues 
in substance: These data deserve attention, for they prove 
that labor would become a misfortune in some families, since 
it reduces not only the earnings, but depresses them so low 
that they become totally insufficient to satisfy anything but a 
small part of a family's absolute necessities, unless additional 
assistance were given in cases where the earnings of a family 
do not reach the amount which w^ould be granted to them if all 
of them were unemployed. (Factory Reports, October, 1863, 
pages 50-53.) 

In no week since June 5, 1863, has the average total em- 
ployment of all laborers been more than Y hours and some 
minutes. (Page 121.) 

From the beginning of the crisis to March 23, 1863, nearly 
three million pounds sterling were expended by the poor 
boards, the central committee of charity, and the London 
Mansion House committee. (Page 13.) 

In one district, in which perhaps the finest yarn is spun, 
the spinners suffer an indirect reduction of wages of 15% as 
a result of passing from Sea Island to Egyptian cotton. 

In one extended district, in whi'ch cotton waste is used in 
large quantities as an admixture to Indian cotton, the spin- 
ners have had their wages reduced by 5%, and lost besides 
from 20 to 30% by working up Surat and waste. The weav- 
ers have dropped from four looms to two. In 1860 they 
made 5 sh. Y d. on each loom, but in 1863 only 3 sh. 4 d. The 
fines, which amounted to from 3 to 6 d. per spinner on Amer- 
ican cotton, now run as high as 1 sh. to 3 sh. 6 d. In one 



1 62 Capitalist Production. 

district, in which Egyptian cotton' was used, mixed with East- 
Indian, the average earnings of the mule spinners in 1860 
was from 18 to 25 sh., while it is only from 10 to 18 sh. now. 
This not exclusively due to deteriorated cotton, but also to 
the decreased speed of the mule, in order to give to the yam a 
stronger twist, for which extra payment according to the wage 
scale would have been made in ordinary times. (Pages 43, 
44, 45-50.) Although East-Indian cotton may have been 
worked here and there at a profit for the manufacturers, the 
wage list on page 53 shows that the laborers suffer from it, 
compared with 1861. If the use of Surat becomes a settled 
fact, the laborers would demand the same wages as in 1857. 
But this would seriously affect the profits of the manufac- 
turers, unless it would be balanced by the price of either the 
cotton or the products. (Page 105.) 

House-Rent. The house-rent of the laborers living in cot- 
tages belonging to the manufacturers, is frequently deducted 
from their wages, even if only short time is worked. ISTever- 
theless the value of these buildings has fallen, and the cot- 
tages are now from 25 to 50% cheaper than formerly. A 
cottage which formerly rented from 3 sh. 6 d. per week, may 
now be had for 2 sh. 4d., and sometimes for less. (Page 
57.) 

Emigration. The employers were, of course, opposed to 
the emigration of the laborers, in the first place because they 
wished, in the expectation of better times in the cotton in- 
dustry, to keep the means at hand for the profitable opera- 
tion of their factories. In the second place some employers 
are owners of cottages in which their employes are to live, 
and at least some of them calculate without fail to collect at 
least a portion of the rent due them. (Page 96.) 

Mr. Bernall Osborne says in a speech to his parliamentary 
constituents, on October 22, 1864, that the laborers of Lan- 
cashire had behaved like ancient stoic philosophers. Per- 
haps they acted like sheep ? 



Additional Remarks. 163 



CHAPTER VII. 

ADDITIONAL REMARKS. 

Take it, in accordance with the assumption on which this sec- 
tion is based, that the mass of profit appropriated in any par- 
ticular sphere of production is equal to the sum of the sur- 
plus-values produced by the total capital invested in this 
sphere. l>[evertheless the bourgeois will not consider his profit 
as identical with the surplus-value, that is to say, with un- 
paid surplus-labor. And he will do so, for the following 
reasons. 

1) He forgets the process of production in the process of 
circulation. He is of the opinion that surplus-value is made 
by his realisation on the value of commodities, which includes 
realisation on their surplus-value. [There is a blank at this 
place, indicating that Marx intended to dwell in detail on this 
point. — F. E.] 

2) Assuming a uniform degree of exploitation, we have 
seen that the rate of profit may differ considerably according 
to the relative cheapness or deamess of raw materials and the 
experience of the buyer, according to the relative productivity, 
efficacy, and cheapness of the machinery employed, according 
to the greater or lesser perfection of the general equipment of 
the various stages of the productive process, the simplicity and 
effectiveness of the management, etc. ; all this without refer- 
ence to any modifications due to the credit-system, to the mu- 
tual cheating of the capitalists among themselves, to any fa- 
vorable choice of the market. In short, given the surplus- 
value for a certain capital, it depends still very much on the 
individual business ability of the capitalist, or of his mana- 
gers and salesmen, whether this same surplus-value realises a 
greater or smaller rate of profit and thus yields a greater or 
smaller mass of profit. The same surplus-value of 1,000 



164 Capitalist Production. 

p.st., a product of 1,000 p.st. of wages, may be calculated in 
the business of A on 9,000 p.st., in the business of B on 11,000 
p.st. of constant capital. In the case of A we have then 
p' = j^^ , or 10%. In the case of B we have p' =j|^, 
or 8;J%. The total capital produces relatively more profit 
in the business of A than in that of B, although the variable 
capital advanced in either case is 1,000 p.st., and the surplus- 
value produced by it likewise 1,000 p.st., so that there is in 
both cases the same degree of exploitation of the same number 
of laborers. This difference in the materialisation of the 
same mass of surplus-value, or the difference in the rates of 
profit, may also be due to other causes. Still, it may be due 
wholly to a difference in business ability in both establish- 
ments. And this fact leads the capitalist to the conviction 
that his profits are due, not to the exploitation of labor, but 
at least, in part, to other circumstances independent of that 
exploitation, particularly to his individual activity. 



The analyses of this part of the work demonstrate the er* 
roneousness of the view (Rodbertus) according to which (in 
distinction from ground-rent, in the case of which the area of 
real-estate is said to remain the same and yet to produce a 
higher rent) a change in the magnitude of a certain capital is 
said to have no influence on the proportion of profit to capi- 
tal, and thus on the rate of profit, on the assumption that the 
mass of capital, on which profits are calculated, grows simul- 
taneously with the mass of profits, and vice versa. 

This is true only in two cases. In the first place, it is 
true, assuming all other circumstances, especially the rate of 
surplus-value, to remain unchanged, if there is a change in 
the value of that commodity which is a money-commodity. 
(The same occurs in the case of a merely nominal change of 
value, the rise or fall of mere tokens of value while other cir- 
cumstances remain the same.) Take it that the total capi- 
tal amounts to 100 p.st., with a profit of 20 p.st., so that the 
rate of profit is 20%. l^ow, if gold rises or falls by 50%, 
the same capital, in the first eventuality, will be Avorth 150 
p.st, which was previously worth only 100 p.st., and the profit 



Additional Remarks. 165 

•will be worth 30 p.st., that is to say, it will be worth that 
much in money instead of 20 p.st., as before. In the second 
eventuality, the capital of 100 p.st. will be worth only 50 
p.st., and the profit will be represented by the value of 10 
p.st. But in either case 150 : 30 = 50 : 10 = 100 : 20 = 
20%. But in all these cases there would have been no actual 
change in the magnitude of capital-value, but only in the 
money-expression of the same value and the same surplus- 
value. For this reason -|-, or the rate of profit, could 
not be affected. 

The second case is that in which an actual change of mag- 
nitude takes place in the value, but without being accompanied 
by a change in the proportion of v to c, in other words, when 
the rate of surplus-value remains the same and the proportion 
of the variable capital invested in labor-power (considered as 
an index of the amount of labor-power set in motion) to the 
constant capital invested in means of production remains the 
same. Under these circumstances, we may have C, or nC, or 
-§-, for instance 1,000, or 2,000, or 500. If the rate of profit 
is 20%, the profit will be 200 in the first case, 400 in the 
second, and 100 in the third. But 200 : 1,000 = 400 : 2,000 
= 100 : 500 = 20%, that is to say the rate of profit remains 
unchanged, because the composition of capital remains the 
same and is not effected by its change of magnitude. An in- 
crease or decrease in the mass of profit shows therefore 
merely an increase or decrease in the magnitude of the in- 
vested capital. 

In the first case, then, there is but seemingly a change in 
the magnitude of the employed capital, while in the second 
case there is an actual change of magnitude, but no change 
in the organic composition of the capital, that is to say, in the 
relative proportions of the variable and constant portions. 
With the exception of these two cases, a change in the magni- 
tude of the employed capital is either the result of a preceding 
change of value in one of the components of capital, and there- 
fore of a change in the relative magnitudes of these compo- 
nents (unless the surplus-value itself varies with the variable 
capital) ; or, this change of magnitude (for instance in the 



i66 Capitalist Production. 

case of enterprises on a large scale, the introduction of new 
machinerj, etc.) is the cause of a change in the relative mag- 
nitudes of the organic components of capital. In all these 
cases, other circumstances remaining unchanged, a change in 
the magnitude of the employed capital must be accompanied 
simultaneously by a change in the rate of profit. 



An increase in the rate of profit is always due to a rela- 
tive or absolute increase of the surplus-value in proportion to 
its cost of production, for instance to the advanced total capi- 
tal, or to a decrease in the difference between the rate of 
profit and the rate of surplus-value. 

Fluctuations in the rate of profit, independently of changes 
in the organic components of capital, or of the absolute mag- 
nitude of the capital, may occur through a rise or fall of the 
value of the advanced capital, whether it be fixed or circulat- 
ing, caused by a prolongation or reduction of the working time 
required for its reproduction, this change in the working 
time taking place independently of already existing capital. 
The value of every commodity, including the commodities of 
which capital consists, is determined, not by the necessary 
labor -time contained in it individually, but by the social labor- 
time necessary for its reproduction. This reproduction may 
take place under aggravating or under propitious circum- 
stances, which differ from the conditions of original produc- 
tion. If it takes under altered conditions double the time, or 
half as much time, to reproduce the same material capital, 
and if the value of money remained unchanged, then a capi- 
tal formerly worth 100 p.st. would be worth 200 p.st. or 50 
p.st. If this appreciation or depreciation were to affect . all 
parts of capital uniformly, then the profit would also be ex- 
pressed correspondingly in double, or half, the amount of 
money. But if appreciation or depreciation imply a change in 
the organic composition of capital, if they imply a raising or 
lowering of the proportion between the variable and constant 
portions of capital, then the rate of profit, other circumstances 
remaining the same, will grow with a relatively growing, and 
fall with a relatively falling, variable capital. If only the 



Additional Remarks. 167 

money-value of the advanced capital rises or falls (in conse- 
quence of a change in the valuation of money) then the money- 
value of the surplus-value rises or falls in the same proportion. 
The rate of profit remains unchanged. 



PART II. 

CONVEESION OF PROFIT INTO AVERAGE PROFIT. 



CHAPTER VIII. 

DIFFERENT COMPOSITIOjST OF CAPITALS IN DIFFEEENT LINES OF 
PEODUCTION AND EJESULTING DIFFEEENCES IN THE BATES OF 
PEOFIT. 

In the preceding part we demonstrated among other things 
that the rate of profit may vary, may rise or fall, while the 
rate of surplus-value remains the same. In the present chap- 
ter we assume that the intensity of exploitation, and there- 
fore the rate of surplus-value and the length of the working 
day, are the same in all spheres of production into which the 
social labor of a certain country is divided. Adam Smith 
has already shown explicitly that many differences in the ex- 
ploitation of labor in different spheres of production balance 
one another by many actual causes, or causes regarded as such 
by prevailing prejudices, so that they are mere evanescent dis- 
tinctions and are of no moment in this calculation. Other 
differences, for instance those in the scale of wages, rest largely 
on the difference between simple and complicated labor, men- 
tioned in the beginning of volume I, which do not affect the 
intensity of exploitation in the different spheres of produc- 
tion, although they render the conditions of the laborers in 
those spheres very unequal. For instance, if the labor of a 
goldsmith is paid better than that of a day-laborer, the sur- 
plus-labor of the goldsmith produces correspondingly more 
surplus-value than that of the day-laborer. And while the 
compensation of Avages and working days, and thereby of the 
rates of surplus-value, between different spheres of produc- 
tion, or even different investments of capital in the same 

i68 



Different Composition of Capitals. 169 

sphere of production, is cheeked by many local obstacles, it is 
nevertheless accomplished at an increasing degree with the 
advance of capitalist production and the subordination of all 
economic conditions under this mode of production. The 
study of such frictions, while quite important for any special 
work on wages, may be dispensed with as being accidental and 
unessential in a general analysis of capitalist production. In 
such a general analysis it is always assumed that the actual 
conditions correspond to the terms used to express them, or, 
in other words, that actual conditions are represented only to 
the extent that they are typical of their own case. 

The difference in the rates of surplus-value in different 
countries, and consequently in the degTee of national exploita- 
tion of labor, is immaterial for our present analysis. For 
we desire to analyse precisely the way in Avhich a general rate 
of profit is brought about in a certain countr)\ It is evident, 
however, that a comparison of the various national rates of 
profit requires but a collation of previous analyses with that 
which is to follow. First consider the differences in the na- 
tional rates of surplus-value, then compare on this basis the 
differences in the national rates of profit. Those differences 
which are not due to differences in the national rates of sur- 
plus-value, must be due to circumstances in which the sur- 
plus-value is assumed to be universally the same, constant, as 
it is in the analysis of this chapter. 

We demonstrated in the preceding chapter that, assuming 
the rate of surplus-value to be constant, the rate of profit may 
rise or fall in consequence of circumstances which raise or 
lower the value of one or the other parts of constant capital, 
and so affect the proportion between the variable and constant 
components of capital in general. We observed, furthermore, 
that circumstances which prolong or reduce the time of turn- 
over of a certain capital may also influence the rate of profit 
in a similar manner. Since the mass of profits is identical 
with the mass of surplus-value, the surplus-value itself, it was 
also seen that the mass of profits, in distinction from the rate 
of profits, was not touched by the aforementioned fluctuations 
of value. These fluctuations modified merely the rate through 



I/O Capitalist Production. 

which a certain surplus-value, and therefore a profit of a 
given magnitude, express themselves, in other words, they in- 
dicate the relative magnitude of surplus-value, or profits, as 
compared with the magnitude of the advanced capital. To 
the extent that capital was released or tied up by such fluc- 
tuations of value, it was not only the rate of profit, but the 
profit itself, which could be affected by this indirect route. 
However, this ahvays applied only to such capital as was al- 
ready engaged, not to new investments about to be made. Be- 
sides, the increase or reduction of profit always depended 
on the extent to which the same capital could set in motion 
more or less labor in consequence of such fluctuations of value, 
in other words, the extent to which the same capital, with the 
same rate of surplus-value, could obtain a larger or smaller 
amount of surplus-value. So far from contradicting the gen- 
eral rule, or being an exception from it, this seeming excep- 
tion was really but a special case in the application of the 
general rule. 

It was seen in the preceding part, that the rate of profit 
varied, when the degree of exploitation was constant while the 
value of the component parts of constant capital, and the time 
of turn-over of capital, changed. The obvious conclusion 
from this was that the rates of profit of different spheres of 
production existing simultaneously side by side had to differ, 
when, other circumstances remaining unchanged, the time of 
turn-over of the invested capitals differed, or when the pro- 
portions of the values of the organic components of these cap- 
itals were different in the different lines of production. That 
which we previously regarded as changes occurring succes- 
sively in the same capital will now be considered as simul- 
taneous differences of contemporaneous investments of capital 
in different spheres of production. 

Under these circumstances we shall have to analyse: 1) 
The differences in the organic composition of capitals. 2) 
The differences in their times of turn-over. 

The natural premise in this entire analysis is that, in 
speaking of the composition, or of the turn-over, of a capi- 
tal in a certain line of production, we always mean the aveis 



Different Composition of Capitals. 171 

age normal proportions of the capital invested in this line, or, 
more generally, of the average of the total capital invested in 
this sphere, not of the temporary differences of the individual 
capitals in it. 

Since onr assumption is, furthermore, that the rate of sur- 
plus-value and the working day are constant, and since this 
assumption implies also the constancy of wages, it follows 
that a certain -quantity of variable capital expresses a definite 
quantity of exploited labor-power and therefore a definite 
quantity of materialised labor. In other words, if 100 p.st. 
represent the weekly wages of 100 laborers, indicating 100 ac- 
tual labor-powers, then n times 100 p.st. indicates the labor- 
powers of n times 100 laborers, and ^~ p.st. those of ^ 
laborers. The variable capital serves here, as is always the 
case when the wages are given, as an index of the amount of 
labor set in motion by a definite total capital. Differences 
in the magnitude of the employed variable capitals serve, 
therefore, as indices of the differences in the amount of labor- 
power set in motion. If 100 p.st. indicate 100 laborers per 
week, representing 6,000 working hours, if the weekly work- 
ing time is 60 hours, then 200 p.st. indicate 12,000, and 50 
p.st. indicate 3,000 working hours. 

By tlie composition of capital we mean, as w'e have stated 
in volume I, the proportions of its active and passive parts, of 
variable and constant capital. Two proportions require con- 
sideration under this heading. They are not equally impor- 
tant, although they may produce the same effects under certain 
circumstances. 

The first proportion rests on a technical basis, and must 
be considered as existing at a certain stage of development 
of the productive forces. A definite quantity of labor-power, 
represented by a definite number of laborers, is required for 
the purpose of producing a definite quantity of products, for 
instance in one day, and thereby to consume productively, 
by setting in motion, a definite quantity of means of produc- 
tion, machinery, raw materials, etc. A definite number of 
laborers corresponds to a definite quantity of means of pro- 
duction, so that a definite quantity of living labor corresponds 



172 Capitalist Production. 

to a definite quantity of materialised labor in means of pro- 
duction. This proportion differs a great deal in different 
spheres of production, and frequently even in different 
branches of one and the same industry. On the other hand, 
it may occasionally be entirely or approximately the same in 
widely separated lines of industry. 

This proportion forms the technical composition of capital 
and is the primary basis of its organic composition. 

However, it is possible that this first proportion may be 
the same in different lines of industry, provided that the vari- 
able capital is merely an index of labor-power, and the con- 
stant capital merely an index of the mass of means of produc- 
tion set in motion by the labor-power. For instance, certain 
work in copper and iron may be conditioned on the same pro- 
portional composition between labor-power and the mass of 
means of production. But since copper is more expensive 
than iron, the proportion of value between variable and con- 
stant capital may be different in either case, and then the 
composition of the value of the total capitals is, of course, 
likewise different. The difference between the technical com- 
position and the composition of values is manifested by each 
branch of industry by tlie fact that the proportion of the 
values of the two parts of capital may vary while the tech- 
nical composition is constant, and the proportion of values 
may remain the same while the technical composition varies. 
This last eventuality will, of course, be possible only if the 
change in the proportion of the employed masses of means of 
production and labor-power is compensated by an opposite 
change in their values. 

The composition of the values of capital, which is deter- 
mined by, and refiects, its technical composition, is called the 
organic composition of capital.^*^ 

We assume, then, that the variable capital is the index of 
a definite quantity of laborers, or of labor-power, or a definite 
quantity of living labor set in motion. We saw in the preced- 

'"' The above is briefly developed in the third edition of volume I, in the begin- 
ning of chapter XXV. Since the two first editions did not contain this passage, 
it was so much more necessary to repeat it at this place. — F. E. 



DOfercnt Composition of Capitals. 1 73 

ing part that a change in the magnitude of the value of varia- 
ble capital might eventually indicate nothing but a higher 
or lower price of the same mass of labor. But here, where 
the rate of surplus-value and the working day have been as- 
sumed to be constant, and the wages for a definite working 
time are given^ this is out of the question. On the other 
hand, a difference in the magnitude of the constant capital 
may likewise be an index of a change in the mass of means of 
production set in motion by a definite quantity of labor-power. 
Still, it may also be due to a diiference in value between the 
means of production set in motion in one sphere and those of 
another. Botli points of view must be considered here. 

Finally, the following essential facts must be taken into 
account : 

Take it that 100 p.st. are the weekly wages of 100 laborers. 
Take it that the working hours are 60 per week. Take it, 
furthermore, that the rate of surplus-value is 100%. In that 
case, the laborers work 30 of the 60 hours for themselves, and 
30 hours gratis for the capitalist. In fact, those 100 p.st. of 
wages represent only 30 working hours of those 100 laborers, 
or a total of 3,000 working hours, while the other 3,000 hours 
worked by the laborers are incorporated in the 100 p.st. of 
surplus-value, or as profit, pocketed by the capitalist. Al- 
though the wages of 100 p.st. do not express the value in 
which the weekly labor of those 100 laborers is materialised, 
still they indicate (since the length of the working day and 
the rate of surplus-value are given) that this capital set in 
motion 100 laborers for 6,000 working hours. The capital 
of 100 p.st. indicates this, first, because it indicates the num- 
ber of laborers set in motion, since one pound sterling stands 
for one laborer per week, and 100 p.st. for 100 laborers per 
week; and in the second place, because every laborer set in 
motion performs twice the work for which his wages pay, at 
the given rate of surplus-value of 100%, so that one pound 
sterling, his wages, the expression of half a week of labor, 
actually set in motion one whole week's labor, and in the same 
way 100 p.st., although they pay only for 50 weeks of labor, 
set in motion 100 weeks of labor. There is, then, an essen- 



174 Capitalist Production. 

tial difference between variable capital so far as its value, in- 
vested as a wages-capital, represents a certain sum of wages, 
a definite quantity of materialised labor, and variable capital 
so far as its value is a mere index of the quantity of living 
labor set in motion by it. Tbis last-named labor is always 
greater than that incorporated in the variable capital, and 
is, therefore, represented by a greater value than that of the 
variable capital. This greater value is determined on one 
hand by the number of laborers set in motion by the variable 
capital, and on the other by the quantity of surplus-labor per- 
formed by them. 

This mode of looking upon variable capital leads to the fol- 
lowing conclusions : 

When a capital invested in the sphere of production A ex- 
pends only 100 in variable capital for each 700 of total cap- 
ital, leaving 600 for constant capital, while a capital invested 
in the sphere of production B expends 600 for variable and 
only 100 for constant capital, then the capital of 700 in A 
will set in motion only 100 of labor-power, or, in terms of 
our previous assumption, 100 weeks of labor, or 6,000 hours 
of living labor, while the same amount of capital in B will set 
in motion 600 weeks of labor or 36,000 hours of living labor. 
The capital in A would then appropriate only 50 weeks of 
labor, or 2,000 hours of surplus-labor, while the same amount 
of capital in B would appropriate 300 weeks of labor, 
or 18,000 hours. The variable capital is the index, not 
only of the labor embodied in it, but also, when the rate 
of surplus-value is known, of the labor set in motion over and 
above that embodied in itself, in other words, of the surplus- 
labor. With the same intensity of exploitation, the profit in 
the first case would be yg-^, or j, or 14:j%, and in the second 
case f|-^, or f, or 85f%, six times the rate of profit of the 
first. In this case, the profit itself would actually be six 
times that of A, 600 in B as against 100 in A, because the 
same capital set in motion six times the quantity of living 
labor, which, with the same degree of exploitation, means 
six times as much surplus-value and thus six times as much 
profit. 



Different Composition of Capitals. 175 

If tlie capital invested in A were not 700, but 7,000 p.st., 
while that invested in B were only 700 p.st., and the organic 
composition of both were to remain the same^ then the capi- 
tal in A would exj)end 1,000 p.st. of the 7,000 as variable 
capital, that is to say, it would employ 1,000 laborers per 
week at 60,000 hours of living labor, of which 30,000 would 
be surplus-labor. But yet each 700 p.st. of the capital in A 
would continue to set in motion only one-sixth of the surplus- 
labor of the capital in B, and produce only one-sixth of the 
profit of this capital. If we consider the rate of profit, then 
J^^w> 0^ T^h <^^ l^f%7 would be the rate of the capital in A, 
compared with f-g-^, or 85|-%>, of the capital in B. Taking 
equal amounts of capital for comparison, the rates of profit 
differ here, because the masses of surplus-value, and thus of 
profits, differ, although the rates of surplus-value are the 
same, owing to the different masses of living labor set in mo- 
tion. 

The same result follows, if the technical conditions are 
the same in both spheres of production, w^hile the value of the 
elements of constant capital is greater or smaller in the one 
than in the other. Let us assume that both invest 100 p.st. 
in variable capital and employ 100 laborers per week, which 
set in motion the same quantity of machinery and raw ma- 
terials. But let the last-named elements of production be 
more expensive in B than in A. For instance, let the 100 
p.st. of variable capital in A set in motion 200 p.st. of 
constant capital, and in B 400 p.st. of constant cap- 
ital. With the same rate of surplus-value, 100%, the sur- 
plus-value produced is in either case 100 p.st. Hence 
the profit is also 100 p.st. But the rate of profit in A is 
2mTmv yOYh or 33^%, while in B H is^ 4oocToov > Q^^ i o^ 
20%. In fact, if we select a certain aliquot part of the 
total capital from either side, we find that every 100 p.st. in 
B sets aside only 20 p.st., or one-fifth, for variable capital, 
while every 100 p.st. in A sets aside 33^% p.st., or one-third, 
for this purpose. B produces less profit to each 100 p.st., 
because it sets in motion less living labor than A. The differ- 



176 Capitalist Production. 

ence in the rates of profits resolves itself once more, in this 
case, into a difference of the masses of surplus-value, and thus 
masses of profit, produced per each 100 of capital invested. 

The difference of this second example from the first is just 
this: The compensation between A and B, in the second 
case, would require only a change in the value of the constant 
capital of either A or B, provided the technical basis re- 
mained the same. But in the first case, the technical basis 
itself is different, and would have to be revolutionised in 
order to consummate a compensation. 

The different organic composition of various capitals, then, 
is independent of their absolute magnitude. It is always 
but a question of what part of every 100 is variable and what 
part constant. 

Capitals of different magnitude, calculated in percentages, 
or, what amounts to the same in this case, capitals of the 
same magnitude, working with the same working time and 
the same degree of exploitation, may produce considerably 
different amounts of surplus-value, and thus of profit, for 
the reason that a difference in the organic composition of cap- 
ital in different spheres of production implies a difference in 
their variable parts, and thus a difference in the quantities 
of living labor set in motion by them, which implies a differ- 
ence in the quantities of surj)lus-labor appropriated by them. 
And this surplus-labor is the substance of surplus-value and 
of profit. Equal portions of the total capital in the various 
spheres of production comprise the sources of unequal por- 
tions of surplus-value, and the only source of surplus-value 
is living labor. With the same degree of labor-exploitation 
the mass of labor set in motion by a capital of 100, and con- 
sequently the mass of surplus-value appropriated by it, de- 
pend on the magnitude of its variable component. If a cap- 
ital, consisting of percentages of 90 c + 10 v, produced as 
much surplus-value, or profit, with the same degree of exploi- 
tation, as a capital consisting of percentages of 10 c -|- 90 v, 
then it would be as plain as daylight that the surplus-value, 
and value in general, must have an entirely different source 
than labor, and that political economy would then be without 



Different Composition of Capitals. 177 

a rational basis. If we assume continiiallj that one pound 
sterling stands for the weekly wages of a laborer working 
60 hours^ and that the rate of surplus-value is 100%, then it 
is evident that the total product in values which one laborer 
can supply in one week, is 2 p.st. Then 10 laborers cannot 
supply more than 20 p.st. And since 10 p.st. of the 20 re- 
produce the wages, those 10 laborers cannot produce any more 
surplus-value than 10 p.st. On the other hand the 90 labor- 
ers, whose total product is 180 p.st., and whose wages amount 
to 90 p.st., produce a surplus-value of 90 p.st. The rate of 
profit in the one case would be 10%, in the other 90%. If 
matters were different, then value and surplus-value would 
be something else than materialised labor. Seeing, then, that 
capitals in different spheres of production, calculated in per- 
centages — or capitals of equal magnitude — are differently 
divided into variable and constant capital, so that they set in 
motion unequal quantities of living labor and produce differ- 
ent surplus-values, and profits, it follows that the rate of 
profit, which consists precisely of the calculation of the per- 
centage of surplus-value on the total capital, must also differ. 
N^ow, if capitals in different spheres of production, calcu- 
lated in percentages, in other words, capitals of equal magni- 
tude, produce unequal profits in different spheres of produc- 
tion, in consequence of their different organic composition, 
then it follows that the profits of unequal capitals in different 
spheres of production cannot be proportional to the magni- 
tude of their respective capitals, or, in slightly different 
words, profits in different spheres of production are not pro- 
portional to the magnitude of the respective capitals invested 
in them. For if profits were to grow at the rate of the invest- 
ment of capital, it would mean that the percentage of profits 
was the same, so that capitals of equal magnitude in different 
spheres of production would have equal rates of profit, in 
spite of their different organic composition. Only within the 
same sphere of production, in which the organic composition 
of capital is known, or in different spheres of production with 
the same organic composition of capitals, do the masses of 
profits stand in direct ratio to the masses of capitals invested. 



178 Capitalist Production. 

To say that tlie profits of capitals of different magnitude are 
proportional to their magnitudes is only another way of say- 
ing that capitals of equal magnitude yield equal profits, or 
that the rate of profits is the same for all capitals, whatever 
may be their organic composition and their magnitude. 

These statements hold good on the assumption that the com- 
modities are sold at their values. The value of a commodity 
is equal to the value of the constant capital contained in it, 
plus the value of the variable capital reproduced in it, plus 
the increment of this variable capital, which increment is the 
surplus-value. With the same rate of surplus-value, its mass 
evidently depends on the mass of the variable capital. The 
value of the product of a capital of 100 is in the one case 
90 c + 10 V + 10 s, or 110, in the other 10 c + 90 v + 90 s, 
or 190. If the commodities are sold at their values, then the 
first product is sold at 110, of which 10 represent surplus- 
value, or unpaid labor; the second product is sold at 190, of 
which 90 represent surplus-value, or unpaid labor. 

This is especially important when international rates of 
profit are compared with one another. Let us assume that 
the rate of surplus-value in some European country is 100%, 
so that the laborer works one-half of the working day for 
himself and the other half for his employer. Let us assume, 
furthermore, that the rate of profit in some Asiatic country is 
25%, so that the laborer works four-fifths of the working day 
for himself, and one-fifth for his employer. Let the compo- 
sition of the national capital in the European country be 
84 c -)- 16 V, that of the national capital of the Asiatic coun- 
try, where little machinery, etc., is used, and a given quantity 
of labor-power consumes relatively little raw material produc- 
tively in a given time, 16 c -{- 84 v. Then we have the fol- 
lowing calculation: 

In the European country: Value of product 84 c -]- 16 v 
+ 16 s, or 116 ; rate of profit -j^oTj o^ 16%. 

In the Asiatic country: Value of product 16 c + 84 v + 
21s, or 121; rate of profit ^V? ^^ 21%. 

The rate of profit in the Asiatic country is higher by more 
than 25% than in the European country, although the rate 



Different Composition of Capitals. 179 

of surplus-value is four times smaller in the former than in 
the latter. Men like Carej, Bastiat, and others, would come 
to the opposite conclusion. 

By the way, different national rates of profit will generally 
be based on different national rates of surplus-value. But 
we compare in this chapter unequal rates of profit resting on 
the same rate of surplus-value. 

Aside from differences of organic composition of capitals, 
which imply different masses of labor, and consequently, 
other circumstances remaining the same, of surplus-labor, 
which set in motion capitals of the same magnitude in differ- 
ent spheres of production, there is still another source for the 
inequality of rates of profit. This is the different length of 
the time of turn-over of capital in different spheres of pro- 
duction. We have seen in chapter IV that, other circum- 
stances being the same, the rates of profits of capitals of the 
same organic composition are proportioned inversely as their 
times of turn-over. We have also seen that the same variable 
capital, if turned over in different periods of time, produces 
unequal masses of annual surplus-value. The difference of 
the times of turn-over, then, is another reason why capitals 
of the same magnitude in different spheres of production do 
not produce equal profits in equal times, and why the rates of 
profit in these different spheres differ. 

On the other hand, the proportional composition of capitals 
as to fixed and circulating capital does not in itself affect the 
rate of profit. It can affect this rate only in the case that 
this difference in composition either coincides with a different 
proportion of the variable and constant parts so that the differ- 
ence in the rate of profit is due to this difference in organic 
composition, and not to the different proportions between 
fixed and circulating capital ; or, if the difference in the pro- 
portion of fixed and circulating capital is responsible for a 
difference in the time of turn-over, during which a certain 
profit is realised. If capitals are divided into fixed and cir- 
culating capital in different proportions, it will, of course, al- 
ways have an influence on the time of turn-over and cause 
differences- in it. But this does not imply that the time of 



iSo * Capitalist Production. 

turn-over, in which the same capitals realise certain profits, is 
different. For instance, A may have to convert the greater 
part of its product continually into raw materials, etc., while 
B may use the same machinery, etc., for a longer time, and 
need less raw material, hut both A and B have a part of their 
capital engaged so long as they are producing; the one in raw 
materials, that is to say circulating capital, the other in ma- 
chinery, etc., or fixed capital. The capitalist in A contin- 
ually converts a portion of his capital from commodities into 
money, and this into raw materials, while the capitalist in 
B employs a portion of his capital for a longer time as an 
instrument of labor without any such conversions. If both 
of them employ the same amount of labor, they will sell 
masses of products of unequal value during the year, but both 
masses of products will contain the same amount of surplus- 
value, and their rates of profit, calculated on the entire capi- 
tal invested, will be the same, although their proportional 
composition of fixed and circulating capital, and their times 
of turn-over, are different. Both capitals realise equal profits 
in equal times, although they are turned over in different pe- 
riods of time.^^ The difference in the time of turn-over has 
in itself no importance except so far as it affects the mass 
of surplus-value which may be appropriated and realized by 
the same capital in a certain time. Seeing that a different 
distribution of the fixed and circulating capital of A and B 
does not necessarily imply a different time of turn-over, which 
would in its turn imply a different rate of profit, it is evi- 
dent, if there is such a difference in the rates of profit of A 
and B, that it is not due to a difference in the proportions of 

** It follows from chapter IV that the above statement is correct only in the 
ease that the capitals of A and B are differently composed so far as their values 
are concerned, but that the percentages of their variable capitals are proportioned 
as their times of turn-over, or inversely as their numbers of turn-over. Let 
capital A have the following percentages of composition: 20c fixed and 70 c cir- 
culating, a total of 90 c, so that the total capital is 90 c -|- 10 v, or 100. At a rate 
or surplus value of 100% the 10 v produce in one turn-over 10 s, making the rate 
of profit for one turn-over 10%. Let capital B have the composition 60 C fixed and 
20c circulating, so that we have 80 c -f 20 v, or 100. The 20 v produce in one 
turn-over, at the above rate of surplus-yalue, 20 s , making the rate of profit for 
one turn-over 20%, which is double that of A. But if A is turned over twice 
per year, and B only once, then 2 X 10 also make 20 per year, and the annual 
rate of profit is the same for both, namely 20%. — F. E. 



Different Composition of Capitals. i8i 

fixed and circulating capital as sucli, but rather to the fact 
that these different proportions indicate an inequality in the 
times of turn-over affecting the rates of profit. 

It follows, then, that a difference in the composition of 
capitals in various lines of production, referring to their fixed 
and circulating portions, has in itself no bearing on the rate 
of profit, since it is the proportion between the constant and 
variable capital which decides this question, and since the 
value of the constant capital, and its relative magnitude as 
compared to that of the variable, is quite independent of the 
fixed or circulating nature of its components. But it will be 
found — and this is one of the causes of wrong conclusions — 
that whenever fixed capital is considerably developed, it is 
but an expression of the fact that production is carried on at 
a large scale, so that the constant capital far outweighs the 
variable, or the living labor-power employed is trifling com- 
pared to the mass of the means of production set in motion 
by it. 

We have demonstrated, that different lines of industry may 
have different rates of profit, corresponding to differences in 
the organic composition of capitals, and, within the limits in- 
dicated, also corresponding to different times of turn-over; 
the law (as a general tendency) that profits are proportioned 
as the magnitudes of the capitals, or that capitals of equal 
magnitude yield equal profits in equal times, applies only 
to capitals of the same organic composition, with the same 
rate of surplus-value, and the same time of turn-over. And 
these statements hold good on the assumption, which has been 
the basis of all our analyses so far, namely that the commodi- 
ties are sold at their values. On the other hand there is no 
doubt that, aside from unessential, accidental, and mutually 
compensating distinctions, a difference in the average rate of 
profit of the various lines of industry does not exist in real- 
ity, and could not exist without abolishing the entire system 
of capitalist production. It would seem, then, as though the 
theory of value were irreconcilable at this point with the 
actual process, irreconcilable with the real phenomena of pro- 



1 82 Capitalist Production. 

duction, so that we should have to give up the attemj)t to 
understand these phenomena. 

It foUovv^s from the first part of tliis volume that the cost- 
pivices are the same for the products of different spheres of 
production, in which equal portions of capital have been in- 
vested for purposes of production, regardless of the organic 
composition of such capitals. The cost-price does not show 
the distinction between variable and constant capital to the 
capitalist. A commodity for which he must advance 100 p.st. 
in production cost him the same amount, whether he invests 
90 c + 10 v, or 10 c -f- 90 v. He always spends 100 p.st. for 
it, no more, no less. The cost-prices are the same for invest- 
ments of the same amounts of capital in different spheres, no 
matter how much the produced values and surplus-values may 
differ. The equality of cost-prices is the basis for the compe- 
tition of the invested capitals, by which an average rate of 
profit is brought about. 



CHAPTER IX. 



FORMATION OF A GENERAL RATE OF PROFIT (AVERAGE RATE 
OF profit) and TRANSFORMATION OF THE VALUES OF COM- 
MODITIES INTO PRICES OF PRODUCTION 

The organic composition of capital depends at each stage on 
two circumstances: First, on the technical relation of the 
employed labor-power to the mass of the employed means of 
production; secondly, on the price of these means of produc- 
tion. We have seen that this composition must be considered 
according to its percentages. We express the organic compo- 
sition of a certain capital, consisting of four-fifths of con- 
stant, and one-fifth of variable capital, by the formula 80 c 
-f- 20 V. We furthermore assume in this comparison that 
the rate of surplus-value is unchangeable. Let it be, for in- 
stance, 100%. The capital of 80 c -|- 20 v then produces a 
surplus-value of 20 s, and this is equal to a rate of profit of 
20% on the total capital. The magnitude of the actual value 



Formation of Average Rate of Profit. 



183 



of the product of this capital depends or the magnitude of 
the fixed part of the constant capital, and on the amount of it 
passing hy wear and tear over to the product. But as this 
circumstance is immaterial so far as the rate of profit and the 
present analysis are concerned, we assume for the sake of 
simplicity that the constant capital is transferred everywhere 
uniformly and entirely to the annual product of the capitals 
named. It is further assumed that these capitals realise equal 
quantities of surplus-value in the different spheres of pro- 
duction, proportional to the magnitude of their variable parts. 
In other words, we disregard for the present the difference 
which may be produced in this respect by the different lengths 
of the periods of turn-over. This point will be discussed 
later. 

Let us compare five different spheres of production, and 
let the capital in each one have a different organic composi- 
tion, as follows : 



Capitals 


Rate of Surplus 
Value 


Surplus 

Value 


Value of 
Product 


Rate of 
Profit 


I. 80 c 20 V 

II. 70 c 30 V 

III. 60 c 40 V 

IV. 85 c 15 V 

V. 95 c 5 V 


100% 
100% 
100% 
100% 
100% 


20 
30 
40 
15 
5 


120 
130 
140 
115 

"15G r- i 


20% 
30% 
40% 

15% 
5% 



Here we have considerably different rates of profit in 
different spheres of production with the same degree of ex- 
ploitation, corresponding to the different organic composition 
of these capitals. 

The grand total of the capitals invested in these five 
spheres of production is 500 ; the gTand total of the surplus- 
value produced by them is 110 ; the total value of all com- 
modities produced by them is 610, If we consider the 
amount of 500 as one single capital, and capitals I to V as its 
component parts (about analogous to the different depart- 
ments of a cotton mill which has different proportions of con- 
stant and variable capital in its carding, preparatory spin- 
ning, spinning, and weaving rooms, on the basis of which the 
average proportion for the whole factory is calculated), then 
we should put down the average composition of this capital of 



184 Capitalist Production. 

600 as 390 c + 110 v, or, in percentages, as 78 c -|~ 22 v. 
In other words, if we regard each one of the capitals of 100 
as one-fifth of the total capital, its average composition would 
be Y8 c -(- 22 V ; and every 100 would make an average sur- 
plus-value of 22. The average rate of profit would, there- 
fore, be 22%, and, finally, the price of every fifth of the total 
]jroduct produced by the capital of 500 would be 122. The 
product of each 100 of the advanced total capital would have 
to be sold, then, at 122. 

But in order not to arrive at entirely wrong conclusions, it 
is necessary to assume that not all cost-prices are equal to 100< 

With a composition of 80 c -|- 20 v, and a rate of surplus- 
value of 100, the total value of the commodities produced by 
the first capital of 100 would be 80 c + 20 v + 20 s, or 120, 
provided that the whole constant capital is tranferred to the 
product of the year. ISTow, this may happen under certain 
circumstances in some spheres of production. But it will 
hardly be the case where the proportion of c to v is that of 
four to one. We must, therefore, remember in comparing the 
values produced by each 100 of the different capitals, that 
they will differ according to the different composition of c as 
to fixed and circulating parts, and that the fixed portions of 
different capitals will wear out more or less rapidly, thus 
transferring unequal quantities of value to the product in 
equal periods of time. But this is immaterial so far as the 
rate of profit is concerned. Whether the 80 c transfer the 
value of 80, or 50, or 5, to the annual product, whether the 
annual product is consequently 80 c -|- 20 v -]- 20 s = 120, 
or 50 c + 20 V -f 20 s =. 90, or 5 c -f 20 v + 20 s = 45, in 
all of these cases the excess of the value of the product over 
its cost-price is 20, and in every case these 20 are calculated 
on a capital of 100 in ascertaining the rate of profit. The 
rate of profit of capital I is, therefore, in every case 20%. 
In order to make this still plainer, we transfer in the follow- 
ing table different portions of the constant capital of the 
same five capitals to the value of their product. 

ISTow, if we consider capitals I to V once more as one single 
total capital, it will be seen that also in this case the compo- 



Formation of Average Rate of Profit. 185 



Capitals 


Rate of 

Surplus 
Value 


Surplus 
Value 


Rate of 
Profit 


Used 

Up 

c 


Value of 
Commod- 
ities 


Cost 
Price 




I. 80 c + 20 V 

II. 70 c + 30 V 

III. 60 c + 40 V 

IV. 85 c + 15 V 

V. 95 c + 5 V 


100% 
100% 
100% 
100% 
100% 


20 
30 
40 
15 
5 


20% 
30% 
40% 
15% 
5% 


50 
51 
51 
40 
10 


90 
111 
131 
70 
20 


70 
81 
91 
55 
15 




390 c +110 V 




110 


1C0% 








Total 


78 c + 22 V 




22 


22% 








Average 



sition of the sums of these five capitals amounts to 500, being 
390c + 110 V, so that the average composition is once more 
78 c -j- 22 V. The average surplus-value also remains 22%. 
If we allot this surplus-value uniformly to capitals I to V, vs^e 
arrive at the following prices of the commodities: 



Capitals 


Surplus 
Value 


Value 


CostPrice 
of commod- 
ities 


Price of 
Commod- 
ities 


Rate of 
Profit 


Deviation of Price 
From Value 


I. 80 c + 20 V 

II. 70 c + 30 V 

III. 60 c + 40 V 

IV. 85 c + 15 V 
v. 95 c + 5 V 


20 
30 
40 
15 
5 


90 
111 
131 
70 
20 


70 
81 
91 
55 
15 


92 
103 
113 

77 
37 


22% 
22% 
22% 
22% 
22% 


+ 2 

- 8 

— 18 

+ 7 
+ 17 



Summing up, we find that the commodities are sold at 
2 '+ 7 + 17 =: 26 above, and 8 + 18 + 26 below their value, 
so that the deviations of prices from values mutually balance 
one another by the uniform distribution of the surplus-value, 
or by the addition of the average profit of 22 per 100 of ad- 
vanced capital to the respective cost-prices of the commodi- 
ties of I to V. One portion of the commodities is sold in the 
same proportion above in which the other is sold below their 
values. And it is only their sale at such prices which makes 
it possible that the rate of profit for all five capitals is uni- 
formly 22%, without regard to the organic composition of 
these capitals. The prices which arise by drawing the aver- 
age of the various rates of profit in the different spheres of 
production and adding this average to the cost-prices of the 
different spheres of production, are the prices of production. 
They are conditioned on the existence of an average rate of 
profit, and this, again, rests on the premise that the rates of 
profit in every sphere of production, considered by itself, have 
previously been reduced to so many average rates of profit. 



1 86 Capitalist Production. 

These special rates of profit are equal to -^ in every sphere 
of production, and they must be deduced out of the values 
of the commodities, as shown in volume I. Without such a 
deduction an average rate of profit (and consequently a price 
of production of commodities), remains a vague and senseless 
conception. The price of production of a commodity, then, 
is equal to its cost-price plus a percentage of profit appor- 
tioned according to the average rate of profit, or in other 
words, equal to its cost-price plus the average profit. 

Since the capitals invested in the various lines of pro- 
duction are of a different organic composition, and since the 
different percentages of the variable portions of these total 
capitals set in motion very different quantities of labor, it 
follows that these capitals appropriate very different quanti- 
ties of surplus-labor, or produce very different quantities of 
surplus-value. Consequently the rates of profit prevailing in 
the various lines of production are originally very different. 
These different rates of profit are equalised by means of com- 
petition into a general rate of profit, which is the average of 
all these special rates of profit. The profit allotted according 
to this average rate of profit to any capital, whatever may be 
its organic composition, is called the average profit. That price 
of any commodity which is equal to its cost-price plus that 
share of average profit on the total capital invested (not merely 
consumed) in its production which is allotted to it in pro- 
portion to its conditions of turn-over, is called its price of 
production. Take, for instance, a capital of 500, of which 
100 are fixed capital, and let 10% of this wear out during 
one turn-over of the circulating capital of 400. Let the aver- 
age profit for the time of this turn-over be 10%. In that case 
the cost-price of the product created during this turn-over 
will be 10 c (wear) -|- 400 (c + v), circulating capital, or a 
total of 410, and its price of production will be 410 (cost- 
price) plus 10% of average profit on 500, or a total of 460. 

While the capitalists in the various spheres of production 
recover the value of the capital consumed in the production 
of their commodities through the sale of these, they do not 
secure the surplus-value, and consequently the profit, created 



Formation of Average Rate of Profif. 187 

in their own sphere bj the production of these commodities, 
but only as much surplus-value, and profit, as falls to the 
share of every aliquot part of the total social capital out of the 
total social surplus-value, or social profit produced by the total 
capital of society in all spheres of production. Every 100 
of any invested capital, whatever may be its organic compo- 
sition, draws as much profit during one year, or any other 
period of time, as falls to the share of every 100 of the total 
social capital during the same period. The various capital- 
ists, so far as profits are concerned, are so many stockholders 
in a stock company in which the shares of profit are uniformly 
divided for every 100 shares of capital, so that profits differ 
in the case of the individual capitalists only according to the 
amount of capital invested by each one of them in the social 
enterprise, according to his investment in social production as 
a whole, according to his shares. That portion of the price 
of commodities which buys back the elements of capital con- 
sumed in the production of these commodities, in other words, 
their cost-price, depends on the investment of capital required 
in each particular sphere of production. But the other ele- 
ment of the price of commodities, the percentage of profit 
added to this cost-price, does not depend on the mass of profit 
produced by a certain capital during a definite time in its 
own sphere of production, but on the mass of profit allotted 
for any period to each individual capital in its capacity as 
an aliquot part of the total social capital invested in social 
production. ^^ 

A capitalist selling his commodities at their price of pro- 
duction recovers money in proportion to the value of the capi 
tal consumed in their production and secures profits in pro- 
portion to the aliquot part which his capital represents in the 
total social capital. His cost-prices are specific. But the 
profit added to his cost-prices is independent of his particular 
sphere of production, for it is a simple average per 100 of in- 
vested capital. 

Let us assume that the five different investments of capi- 
tal named I to V in the foregoing illustrations belong to one 

^ Cherbuliez. 



1 88 Capitalist Production. 

man. The quantity of variable and constant capital con- 
sumed for each 100 of the invested capitals in the production 
of commodities would be known, and these portions of the 
value of the commodities of I to V would make up a part of 
their price, since at least this price is required to recover the 
consumed portions of the invested capital. These cost-prices 
would be different for each class of the commodities I to V, 
and the owner would therefore mark them differently. But 
the different masses of surplus-value, or profit, produced by 
capitals I to V might easily be regarded by the capitalist as 
profits of his aggregate capital, so that each 100 would get 
its proportional quota. The cost-prices of the commodities 
produced in the various departments I to V would be differ- 
ent; but that portion of their selling price which comes from 
the addition of the profit for each 100 of capital would be 
the same for all these commodities. The aggregate price of 
the commodities of I to V would be equal to their aggregate 
value, that is to say, it would be equal to the sum of the cost- 
prices of I to V plus the sum of the surplus-values, or profits, 
produced in I to V. It would actually be the money-expres- 
sion of the total quantity of past and present labor incorpo- 
rated in the commodities of I to V. And in the same way the 
sum of all* the prices of production of all commodities in so- 
ciety, comprising the totality of all lines of production, is 
equal to the sum of all their values. 

This statement seems to be contradicted by the fact that 
under capitalist production the elements of productive cap- 
ital are, as a rule, bought on tlie market, so that their prices 
include profits which have already been realised. Accord- 
ingly, the price of production of one line of production passes, 
with the profit contained in it, over into the cost-price of an- 
other line of production. But if we place the sum of the 
cost-prices of the whole country on one side, and the sum of 
its surplus-values, or profits, on the other, it is evident that 
the calculation must come out right. For instance, take a 
certain commodity A. Its cost-price may contain the profits 
of B, C, D, etc., or the cost-prices of B, C, D, etc., may con- 
tain the profits of A. ISTow, if we make our calculation, the 



Formation of Average Rate of Profit 189 

profits of A will not be included in its cost-price, nor will the 
profits of B, C, D, etc., be figured in with their own cost- 
prices. JSTo one figures his own profit in his own cost-price. 
If there are n. spheres of production, and every one of them 
makes a profit of p, then the aggregate cost-price of all of 
them is equal to k — np. Taking the calculation as a whole 
we see that the profits of one sphere which pass into the cost- 
prices of another have been placed on one side of the account 
showing the total price of the ultimate product, and so cannot 
be placed a second time on the profit side. If any do appear 
on this side, it can be only because this particular commodity 
was itself the ultimate product, so that its price of produc- 
tion did not pass into the cost-price of some other commodity. 

If an amount equal to p, expressing the profits of the pro- 
ducers of means of production, passes into the cost-price of a 
commodity, and if a profit equal to p' is added to this cost- 
price, then the aggregate profit P is equal to p + p'. The 
aggregate cost-price of a commodity, after deducting all 
amounts for profit, is in that case its own cost-price minus P. 
If this cost-price is called k, then it is evident that k + P = 
k -|- P + p'. We have seen in volume I, chapter IX, 2, that 
the product of every capital may be treated as though a part 
of it reproduced only capital, while the other part represented 
only surplus-value. Applying this mode of calculation to 
the aggregate product of society, it is necessary to make some 
rectifications. For, looking upon society as a whole, it would 
be a mistake to figure, say, the profit contained in the price 
of flax twice. It should not be counted as a portion of the 
price of linen and at the same time as the profit of the pro- 
ducers of flax. 

To the extent that the surplus-value of A passes into the 
constant capital of B, there is no difference between surplus- 
value and profit. It is quite immaterial for the value of the 
commodities, whether the labor contained in them is paid or 
unpaid. We see merely that B pays for the surplus-value of 
A. But the surplus-value of A cannot be counted twice in 
the total calculation. 

The essential difference is this: Aside from the fact that 



IQO Capitalist Production. 

the 2:)rice of a certain product, for instance the product of cap- 
ital B, differs from its value^ because tlie surplus-value real- 
ized in B may be greater or smaller tban the profit of others 
contained in the product of B, the same fact applies also to 
those commodities v;hich form the constant part of its capital, 
and which indirectly, as necessities of life for the laborers, 
form its variable part. So far as the constant part is con- 
cerned, it is itself equal to the cost-price plus surplus-value, 
which now means cost-price plus profit, and this profit may 
again be greater or smaller than the surplus-value in whose 
place it stands. And so far as the variable capital is con- 
cerned, it is true that the average daily wage is equal to the 
values produced by the laborers in the time which they must 
work in order to produce their necessities of life. But this 
time is in its turn modified by the deviation of the prices of 
production of the necessities of life from their values. How- 
ever, this always amounts in the end to saying that one com- 
modity receives too little of the surplus-value while another 
receives too much, so that the deviations from the value shown 
by the prices of production mutually compensate one another. 
In short, under capitalist production, the general law of value 
enforces itself merely as the prevailing tendency, in a very 
complicated and approximate manner, as a never ascertain- 
able average of ceaseless fluctuations. 

Since the average rate of profit is formed by the average 
of the various rates of profit for each 100 of the invested capi- 
tal during a definite period of time, say one year, it follows 
that the difference brought about by the various periods of 
turn-overs of different capitals is also effaced by this means. 
\ But these differences play a leading role in the different 
' rates of profit of the various spheres of production whose 
average forms the average rate of profit. 

In the preceding illustration we assumed each capital in 
every sphere of production helping to make up the average 
rate of profit to be equal to 100, and we did so in order to 
show the differences in the rates of profit by percentages and 
incidentally the difference in the values of commodities pro- 
duced by equal amounts of capital. But it is understood that 



Formation of Average Rate of Profit 191 

the actual masses of surplus-value produced in each sphere 
of production depend on the magnitude of the invested cap- 
itals, since the composition of each capital is determined by 
each sphere of production. But the particular rate of profit 
of any individual sphere of production is not affected by the 
circumstance that a capital of 100, or m times 100, or xm 
times 100 may be invested. The rate of profit remains 10%, 
whether the total profit is as 10 to 100, or 1,000 to 10,000. 

However, since the rates of profit differ in the various 
■ spheres of production, seeing tliat considerably different 
masses of surplus-value, or profit, are produced in them ac- 
cording to the proportion of the variable to the total capital, 
it is evident that the average profit per 100 of the social cap- 
ital, and consequently the average, or general, rate of profit, 
will differ considerably according to the respective magni- 
tudes of the capitals invested in the various spheres. Take, 
for instance, four capitals A, B, C, D. Let the rate of sur- 
plus-value be 100% for all of them. Let the variable capi- 
tal for each 100 of total capital be 25 in A, 40 in B, 15 in C, 
and 10 in D. In that case every 100 of the total capital 
would make a surplus-value, or profit, of 25 in A, 40 in B, 
15 in C, and 10 in D. This would make a total of 90, and 
if these four capitals are of the same magnitude, the average 
rate of profit would be^, or 22.5%. 

ISTow take it that the amounts of the total capitals are as 
follows: A equals 200, B, 300, C, 1,000, D, 4,000. The 
profits produced in that case would be 50, 120, 150, and 400. 
Lumping these four capitals together into one total capital 
of 5,500, its profit would be 720, and its average rate of 
profit 13^%). 

The masses of the total value produced differ according to 
the magnitudes of the total capitals invested in A, B, C, D, 
respectively. The question of the formation of an average 
rate of profit is therefore not merely a matter of drawing 
simply the average of the different rates of profit in the va- 
rious spheres of production, but quite as much one of the rela- 
tive weight which these different rates of profit carry in the 
formation of the average. This depends on the relative mag- 



192 Capitalist Production. 

nitude of the cajjital invested in each particular sphere, or on 
the aliquot part which the capital invested in each particular 
sphere forms in the aggregate social capital. There will nat- 
urally be a very great difference according to whether a large 
or a small part of the total capital yields more or less of a 
rate of profit. And this, again, depends on the fact whether 
much or little capital is invested in those spheres in which the 
variable capital is relatively small or large compared to the 
total capital. It is the same with the average interest which 
a usurer draws who lends different amounts of capital at 
different rates of interest; for instance at 4, 5, 6, Y%, etc. 
The average rate of his interest will depend entirely on the 
relative magnitudes of the various capitals put out by him at 
different rates of interest. 

We see, then, that the average rate of profit is determined 
by two factors: 

1) By the organic composition of the capitals in the differ- 
ent spheres of production, and consequently by the different 
rates of profit of the individual spheres. 

2) By the allotment of the social total capital to these 
different spheres, in other words, by the relative magnitude 
of the capitals invested in each particular sphere and the 
special rate of profit attendant to it; or, to express it still 
differently, by the relative share of the total social capital ab- 
sorbed by each sphere of production. 

In volumes I and II we were dealing only with the values 
of the commodities. Now we have dissected this value on 
the one hand into a cost-price^ and on the other we have de- 
veloped out of it another form, that of the price of production 
of commodities. 

Take it that the composition of the average social capital 
is 80 c -}- 20 v, and that the annual rate of surplus-value, s', 
is 100%. In that case the average annual profit for a capital 
of 100 would be 20, and the average annual rate of profit 
20%. Whatever may be the cost-price k of the commodities 
annually produced by a capital of 100, their price of produc- 
tion will be k -|- 20. In those spheres of production, in 
which the composition of capital would be (80 — x) c -j- 



Formation of Average Rate of Profit. 193 

(20 + x) V, the actually produced surplus-value, or the an- 
nual profit produced in this sphere, would be 20 + x, that is 
to say greater than 20^ and the value of the produced 
commodities k -[- 20 -f- x, that is to say greater than 
k -|- 20, greater than their price of production. On the 
other hand, in those spheres, in which the composition of 
the capital would be (80 -p x) c + (20 — x) v, the annually 
produced surplus-value, or profit, would be 20 — x, or smaller 
than 20, and consequently the value of the commodities k + 
20 — X, smaller than the price of production, which is k -]-20. 
Aside from eventual differences in the periods of turn-over, 
the price of production of the commodities would be equal 
with their value only in those spheres, in which the composi- 
tion would happen to be 80 c + 20 v. 

The specific development of the social productivity of labor 
varies more or less in each particular sphere of production in 
proportion as the quantity of means of production set in mo- 
tion in a given working day by a given number of laborers is 
large, and consequently the quantity of labor required for a 
definite quantity of means of production small. Hence we 
call capitals of higher composition such capitals as contain a 
larger percentage of constant and a smaller percentage of vari- 
able capital than the average social capital; and vice versa, 
capitals of lower composition those capitals which give rela- 
tively more room to the variable, and relatively less to the con- 
stant capital, than the average social capital. Finally, we 
call capitals of average composition those capitals which have 
the same composition as the average social capital. If the 
average social capital is composed of 80 c -f- 20 v, then a cap- 
ital of 90 c + 10 V stands above, and a capital of 70 c -|- 30 v 
below the social average. Generally speaking, if the compo- 
sition of the average social capital is mc -\- nv, m and n be- 
ing constant magnitudes and m -|- n being equal to 100, the 
formula (m -f- x) c -f- (n — x) v represents the higher com- 
position, and (m — x) c -j- (n -j- x) v the lower composition, 
of some individual capital or group of capitals. The follow- 
ing tabulation shows the way in which these capitals per- 
form their functions after an average rate of profit has been 

M 



194 Capitalist Production. 

established, assuming one tnrn-over per year. In this tabula- 
tion, I shows the average composition, in which the average 
rate of profit is 20%. 

I). 80 c + 20 V + 20 s. Eate of profit 20%. Price of 
product 120. Value of product 120. 

II). 90 c + 10 V + 10 s. Eate of profit 20%. Price of 
product 120. Value of product 110. 

III). 70 e + 30 V + 80 s. Eate of profit 20%. Price of 
product 120. Value of product 130. 

The value of the commodities produced by capital II 
would, therefore, be smaller than their price of production, 
while the price of production of the commodities of III 
would be smaller than their value. Value and price of pro- 
duction would be equal only in the case of capital I and others 
like it in the various lines of production. By the way, in 
applying these terms to any particular cases it must be borne 
in mind whether a deviation of the proportion between c and v 
is not due simply to a change in the value of the elements of 
constant capital, instead of a difference in the technical com- 
position. 

The foregoing statements are indeed a modification of our 
original assumption concerning the determination of the cost- 
price of comnlodities. We had originally assumed that the 
cost-price of a commodity is equal to the value of the commod- 
ities consumed in its production. ISTow, the price of pro- 
duction of a certain commodity is its cost-price for the buyer, 
and this price may pass into other commodities and become an 
element of their prices. Since the price of production may 
vary from the value of a commodity, it follows that the cost- 
price of a commodity containing this price of production may 
also stand above or below that portion of its total value which 
is formed by the value of the means of production consumed 
by it. It is necessai-y to remember this modified significance 
of the cost-price, and to bear in mind that there is always the 
possibility of an error, if we assume that the cost-price of 
the commodities of any particular sphere is equal to the value 
of tlie means of production consumed by it. Our present 
analysis does not necessitate a closer examination of this 



Formation of Average Rate of ProHt. 195 

point. It remains true, nevertheless, that the cost-price of a 
commodity is always smaller than its value. For no matter 
how much the cost-price of a commodity may differ from the 
value of the means of production consumed by it, a previous 
mistake in this respect is immaterial for the capitalist. The 
cost-price of a certain commodity has been previously deter- 
mined, it is a premise independent of the production of our 
capitalist, while the result of his production is a commodity 
containing surplus-value, which is an addition to its cost- 
price. For all other purposes, the statement that the cost- 
price is smaller than the value of a commodity is now prac- 
tically changed into the statement that the cost-price is smaller 
than the price of production. So far as the total social capi- 
tal is concerned, in the case of which the price of production 
is equal to the value, this statement is still identical with the 
former, namely that the cost-price is smaller than the value 
of a commodity. And while this state of things is modified 
in the individual spheres of production, still the fundamental 
fact always remains that, from the point of view of the total 
social capital, the cost-price of the commodities produced by 
it is smaller than their value, or smaller than their price of 
production, ^vhich in the case of the total mass of social com- 
modities is identical with their value. The cost-price of a 
commodity refers only to the quantity of paid labor contained 
in it, while its value refers to all the paid and unpaid labor 
contained in it. The price of production refers to the sum 
of the paid labor plus a certain quantity of paid labor de- 
termined by conditions which are independent of the individ- 
ual sphere in which this particular commodity was produced. 

The formula that the price of production of a commodity 
is equal to k -f- p, equal to its cost-price plus profit, is now 
more precisely modified by the explanation that p equals kp' 
(p' meaning the average rate of profit), so that the price of 
production is equal to k -f kp'. If k is 300 and p', 15%, 
then the price of production, being k + kp', is 300 -j- 300 
X tVV, or 345. 

The price of production of the commodities in any particu- 
lar sphere may alter its magnitude in the following cases : 



196 Capitalist Production. 

1) If tlie average rate of profit is changed througli con- 
ditions wliicli are independent of this particular sphere, as- 
suming the value of commodities to remain the same (so that 
the same quantities of dead and living labor are consumed 
in their production as before). 

2) If there is a change of value, either in this particular 
sphere in consequence of technical changes, or in consequence 
of a change in the value of the commodities which form ele- 
ments of the constant capital of this sphere, vphile the average 
rate of profit remains unchanged. 

3) If the two aforementioned eventualities combine their 
effects. 

In spite of the great changes occurring continually, as we 
shall see, in the rates of profit of the individual spheres of 
production, there is on the other hand no rapid change in the 
average rate of profit, unless it is brought about exceptionally 
by extraordinary economic events. A change in the average 
rate of profit is as a rule the belated work of a long series of 
fluctuations extending over very long periods of tinie, fluctua- 
tions which require much time before they will consolidate 
and compensate one another so as to bring about a change in 
the average rate of profit. In all short periods of time 
(quite aside from fluctuations of market prices), a change in 
the prices of production is, therefore, always traceable to ac- 
tual changes in the value of commodities, that is to say, to 
changes in the total amount of labor-time required for their 
production. As a matter of course, mere changes in the 
money-expression of the same values are not at all considered 
here.^^ 

On the other hand it is evident that, from the point of 
view of the total social capital, the value of the commodities 
produced by it (or, expressed in money, their price) is equal 
to the value of the constant capital plus the value of the vari- 
able capital plus the surplus-value. Assuming the degree of 
labor-exploitation to be constant, the rate of profit cannot 
change so long as the mass of surplus-value remains the same, 
unless either the value of the constant capital changes, or the 

saCorbett, page 174. 



Formation of Average Rate of Profit. 197 

value of the variable capital, or the value of both, so that C 
is changed and thereby -^, the general rate of profit. In 
every event, then, a change in the average rate of profit is 
conditioned on a change in the value of the commodities 
which form the elements of the value of the constant, or vari- 
able capital, or of both. 

Or, the average rate of profit may change, if the degree of 
labor-exploitation changes, while the value of the commodities 
remains the same. 

Or, if the degree of labor-exploitation remains the same, 
the average rate of profit may change through a relative 
change in the labor employed in comparison to the constant 
capital, as a result of technical changes in the labor-process. 
But such technical changes must always find expression in a 
change of value of the commodities, and be accompanied by it, 
since their production will then require either more or less 
labor than before. 

We saw in part I that the mass of profit and surplus-value 
were identical. But the rate of profit was from the first dis- 
tinguished from the rate of surplus-value, and this appeared 
to be due, at first sight, to a mere difference of calculation. 
But at the same time this way of looking at the question 
served from the outset to obscure and mystify the actual ori- 
gin of surplus-value, since the rate of profit could rise or fall, 
while the rate of surplus-value remained the same, and vice 
versa, and since the capitalist had a practical interest only in 
the rate of profit. But there was an actual difference of mag- 
nitude only between the rates of surplus-value and of profit, 
not between the masses of surplus-value and of profit. Since 
the surplus-value was calculated on the total capital in figur- 
ing up the rate of profit, and this total capital was regarded 
as the standard of measurement, the surplus-value itself 
seemed to have its origin in the total capital and to proceed 
from all its parts uniformly, so that the organic difference 
between constant and variable capital was obliterated. In 
its disguise of profit, the surplus-value had actually con- 
cealed its origin, lost its character, and become unrecogniza- 
ble. However, hitherto the distinction between profit and 



198 Capitalist Production. 

surplus-value referred only to a cliauge of quality, or form, 
and there was no real difference of magnitude between the 
masses of surplus-value and profit, but only between the rates 
of surplus-value and profit, in this first stage of their meta- 
morphosis. 

But this is changed, as soon as a general rate of profit, 
and, by means of it, an average mass of profit corresponding 
to the magnitude of the capitals invested in the various 
spheres of production, have been established. 

After that it is but accidentally that the surplus-value ac- 
tually produced in any particular sphere of production, and 
thus the profit, is identical with the profit contained in the 
selling price of the commodities. It then becomes the rule, 
that not only the rates of surplus-value and profit are the ex- 
pression of different magnitudes, but also the masses of sur- 
plus-value and of profit. Assuming a certain degree of ex- 
ploitation to exist, the mass of the surplus-value produced in 
any particular sphere of production is now more important 
for the average profit of the total social capital, and thus for 
the capitalist class in general, than for the individual capi- 
talist in any individual line of production. It has any im- 
portance for the individual capitalist only to the extent ^^ 
that the quantity of surplus-value produced in his line plays 
a determining role in regulating the average profit. But this 
is a process which takes place behind his back, which he does 
not see, nor understand, and which indeed does not interest 
him at all. The actual difference of magnitude between 
profit and surplus-value — not merely between the rate of 
profit and of surplus-value — in the various spheres of pro- 
duction now conceals completely the true nature and origin 
of profit, not only for the capitalist, who has a special inter- 
est in deceiving himself on this score, but also for the laborer. 
By the transformation of values into prices of production, the 
basis of the determination of value is itself removed from di- 
rect observation. Finally, seeing that the mere transforma- 
tion of surplus-value into profit separates that portion of the 

** Of course, we leave aside the question of the probability of securing an extra 
profit by cutting wages, monopoly prices, etc., at least for the moment. 



Formation of Average Rate of Profit. 199 

value of commodities whicli forms the profit from that por- 
tion which forms the cost-price of commodities, it is natural 
that the capitalist should lose the meaning of the term value at 
this juncture. For he is not confronted with the total labor 
put into the production of the commodities, but only with 
that portion of the total labor which he has paid in the shape 
of means of production, whether they be alive or dead, so that 
his profit appears to him as something outside of the imma- 
nent value of the commodities. And now this conception is 
fully endorsed, fortified, and ossified by the fact that, from 
the point of view of his particular sphere of production, the 
profit is not determined by the limits drawn for the formation 
of value within his own circle, but by outside influences. 

The fact that the actual state of things is here revealed for 
the first time; that political economy up to the present time, 
as we shall see in the following and in volume IV, made 
either forced abstractions of the distinctions between surplus- 
value and profit, and their rates, in order to be able to retain 
the determination of value as a basis, or gave up the deter- 
mination of value and with it all safeguards of scientific proce- 
dure, in order to cling to the obvious phenomena of these differ- 
ences — this confusion of the theoretical economists demon- 
strates most strikingly the utter incapacity of the capitalist, 
when blinded by competition, to penetrate through the out- 
ward disguise into the internal essence and the inner form of 
the capitalist process of production. 

In fact, all the laws concerning the rise and fall of the 
rate of profit, as analysed in part I, have the following double 
meaning : 

1) On the one hand, they are the laws of the average rate 
of profit. In view of the many different causes which bring 
about a rise or a fall in the rate of profit, one would think 
that the average rate of profit would change every day. But 
a certain movement in one sphere will counterbalance that of 
another, their effects cross and paralyze one another. We 
shall examine later on toward which side these fluctuations 
gTavitate ultimately. But they are slow. The suddenness, 
multiplicity, and different duration of the fluctuations in the 



200 Capitalist Production. 

individual spheres of production tend to compensate them 
mutually in the order of their succession in time, so that a 
fall in prices follows after a rise, and vice versa, limiting 
these fluctuations to local, individual, spheres. As a result, 
tlie various local fluctuations ultimately neutralise one an- 
other. Changes take place within each individual sphere of 
production, deviations from the average rate of profit, which 
on the one hand, balance one another after a certain time and 
thus do not react upon the average rate of profit, and which, 
on the other hand, do not react upon it, because they are bal- 
anced by other simultaneous fluctuations in other local 
spheres. Since the average rate of profit is determined, not 
only by the average profits of each sphere, but also by the 
allotment of the total social capital to the different individual 
spheres, and since this allotment is continually changing, this 
is another continuous cause of changes in the average rate of 
profit. But it is a cause of changes which largely paralyzes 
itself, owing to its interrupted and many sided nature. 

2) Within each sphere, there is a certain playroom for a 
space of time in which the local rate of profit may fluctuate, 
before this fluctuation of rise and fall consolidates sufficiently 
to gain time for exerting an influence on the average rate of 
profit and assuming more than a local importance. Within 
these limits of space and time, the laws of the rate of profit, 
as developed in Part I of this volume, likewise remain ap- 
plicable. 

The theoretical conception, referring to the first transfor- 
mation of surplus-value into profit, according to which every 
part of the capital yields uniformly the same profit,^^ ex- 
presses a practical fact. Whatever may be the composition 
of the industrial capital, whether it sets in motion one quar- 
ter of dead labor and three quarters of living labor, or three 
quarters of dead labor and one quarter of living labor, 
whether it absorbs three times as much surplus-labor, or pro- 
duces three times as much surplus-value, in one case than in 
another, it yields the same profit in either case, always as- 
suming the degree of labor-exploitation to be the same, and 

2B Malthus. 



Formation of Average Rate of Profit 201 

leaving aside individual differences, which disappear for the 
reason that we are dealing in either case with the average 
composition of the entire sphere of production. The indi- 
vidual capitalist, whose outlook is limited, or even all the 
capitalists in each individual sphere of production, justly 
believe that their profits are not derived solely from the 
labor employed in their own individual sphere. This is quite 
true so far as their average profit is concerned. To what ex- 
tent this profit is due to the universal exploitation of labor 
by means of the total social capital, that is to say, by all his 
capitalist colleagues, this connection of things is a complete 
mystery for the individual capitalist. And it is all the more 
so, since no bourgeois economist has so far cleared it up for 
him. A saving of labor — not only of labor necessary for the 
production of a certain product, but also of the number of la- 
borers employed — and the employment of more dead labor 
(constant capital), appear as very correct operations from an 
economic point of view, and do not seem to exert the least in- 
fluence on the average rate of profit and the average profit. 
TIow, then, could living labor be the exclusive source of profit, 
seeing that a reduction in the quantity of labor required for 
production does not only seem to exert no injurious influence 
on profit, but even seems, under certain circumstances, to be 
the first cause for an increase of profits, at least for the in- 
dividual capitalist ? 

If there is a rise or fall, in any particular sphere of pro- 
duction, in that portion of the cost-price which represents the 
value of the constant capital, it is a portion coming out of the 
circulation and passes from the outset into the process of pro- 
duction of the commodities in its enlarged or reduced state. 
If, on the other hand, the same number of laborers produces 
more or less in the same time^ so that the quantity of labor 
required for the production of a definite quantity of com- 
modities varies while the number of laborers remains the 
same, it may be that that portion of the cost-price, which rep- 
resents the value of the variable capital, may remain the same 
and contribute the same amount to the cost-price of the total 
product. But every individual commodity, whose sum makes 



202 Capitalist Production. 

lip the total product, shares in more or less labor (paid and 
unpaid), and shares therefore in the greater or smaller outlay 
for this labor, a larger or smaller portion of the wages. The 
total wages paid by the capitalist remain the same, but the 
calculation for each individual commodity is different. To 
that extent there would be a change in the cost-price of the 
commodities. But no matter whether the cost-price of the 
individual commodities rises or falls, either as a result of such 
changes of value in this same commodity, or of changes of 
value in its elements (or, perhaps, the cost-price of the total 
amount of commodities produced by a capital of a given mag- 
nitude), if the average profit is, say, 10%, it remains 10%. 
Still, 10%, from the point of view of the individual com- 
modity, may represent very different amounts, according to 
the change of magnitude in the cost-price of the individual 
commodities called forth by such changes of value as we 
have assumed.^® 

So far as the variable capital is concerned — and this is 
the more important, because it is the source of surplus-value, 
and because anything which conceals its relation to the accu- 
mulation of wealth by the capitalist serves to mystify the en- 
tire system — the matter assumes a coarser form. It appears 
to the capitalist in this light : A variable capital of 100 p.st. 
employs, perhaps, 100 laborers per week. If these 100 la- 
borers produce 200 pieces of commodities or 200 d, per week 
in a given working time, then 1 C — leaving aside the ques- 
tion of that portion of its cost-price which is added by the 
constant capital, costs 10 shillings, for 100 p.st. pay for 200 c, 
and therefore 1 C costs -|-|-^ p.st. Now take it that a change 
takes place in the productive power of labor. Perhaps it is 
doubled, so that the same number of laborers now produces 
twice 200 C in the same time in which they used to produce 
once 200 C. In that case 1 C costs 5 shillings (always 
speaking only of that portion of the cost-price which consists 
of wages), for since 100 p.st. now pay for 400 C, 1 C costs 
\^^ p.st. On the other hand, if the productive power were 
to decrease by one-half, then the same labor would produce 

8« Corbett. 



Market Prices and Market Values. 203 

only ^^ C. And since 100 p.st. pay for -^^ C, 1 C would 
cost |-g-g- p.st., or 1 p.st. TliG changes in the labor-time re- 
quired for the production of the commodities, and thus the 
changes in their values, thus appear with reference to the 
cost-price and the price of production as different allotments 
of the same wages to more or fewer commodities, according 
to the greater or smaller quantity of commodities produced 
in the same working time for the same wages. The capi- 
talist, and consequently his political economist, see that the 
aliquot part of the paid labor falling to the share of each 
individual commodity changes with the productivity of labor, 
and that the value of these commodities also changes accord- 
ingly. But they do not see that the same is true of the un- 
paid labor contained in every individual commodity, and they 
see it so much less since the average profit is but accidentally 
determined by the unpaid labor absorbed in the sphere of 
the individual capitalist. Only in this vagTie and meaning- 
less form are w^e still reminded of the fact that the value of 
the commodities is determined by the labor contained in them. 



CHAPTEE X. 

COMPENSATION OF THE AVEEAGE EATE OF PEOFIT BY COM- 
PETITION. MAEKET PEICES AND MAEKET VALUES. SUE- 
PLUS-PEOFIT. 

One portion of the spheres of production has an average com- 
position of their capitals, that is to say, their capitals have 
exactly or approximately the composition of the average so- 
cial capital. 

In these spheres of production, the price of production of 
the produced commodities coincides exactly or approximately 
with their values as expressed in money. If there is no other 
way of reaching a mathematical limit, this would be the one. 
Competition distributes the social capital in such a way be- 
tween the various spheres of production that the prices of 
production of each sphere are formed after the model of the 



204 Capitalist Production. 

prices of production in these spheres of average composition, 
which is k + kp', cost-price plus the average rate of profit 
multiplied by the cost-price. ilSTow, this average rate of profit 
is nothing else but the percentage of profit in that sphere of 
average composition, in which the profit is identical with the 
surplus-value. Hence the rate of profit is the same in all 
spheres of production, for it is apportioned according to that 
one of the average spheres of production in which the average 
composition of capitals prevails. Consequently the sum of the 
profits of all spheres of production must be equal to the 
sum of surplus-values, and the sum of the prices of produc- 
tion of the total social product equal to the sum of its values. 
But it is evident that the balance between the spheres of pro- 
duction of different composition must tend to equalise them 
with the spheres of average composition, no matter whether 
this average composition is exact or only approximate. 
Again, there are tendencies toward equalisation between the 
more or less similar spheres, and these tendencies seek to 
bring about the ideal average, which does not really exist, so 
that there is a trend toward crystallisation around the ideal. 
In this way the tendency necessarily prevails to make of the 
prices of production merely changed forms of value, or to 
make of profits but mere portions of surplus-value, which are 
assigned, however, not in proportion to the surplus-value pro- 
duced in each special sphere of production, but in proportion 
to the mass of capital employed in each sphere of production, 
so that equal masses of capital, whatever may be their com- 
position, receive equal aliquot shares of the total surplus- 
value produced by the total social capital. 

In the case of capitals of average, or approximately aver- 
age, composition, the price of production coincides exactly, or 
approximately with the value, and the profit with the surplus- 
value produced by them. All other capitals, of whatever com- 
position, tend toward this average under the pressure of com- 
petition. Eut since the capitals of average composition are of 
the same, or approximately the same, structure as the average 
social capital, all capitals have the tendency, regardless of the 
surplus-value produced by them, to realise in the prices of 



Market Prices and Market Values. 205 

their commodities tlie average profit, instead of tlieir o^vii sur- 
plus-value, in other words, to realise the prices of production. 

On the other hand it may be said that whenever an average 
profit, and a general rate of profit, are brought about, no mat- 
ter by what means, such an average profit cannot be anything 
else but the profit on the average social capital, the sum of 
these average profits being equal to the sum of surplus-values 
produced by the average social capitals, and that the prices 
brought about by adding this average profit to the cost-prices 
cannot be anything else but the values transformed into prices 
of production. It would not alter matters, if certain capitals 
in certain spheres of production would not submit to the 
process of equalisation for some reason or other. In that 
case the average profit would be computed on that portion of 
the social capital which takes part in the process of equalisa- 
tion. It is evident that the average profit cannot be anything 
else but the total mass of surplus-values allotted to the various 
masses of capital in the different spheres of production in 
proportion to their magnitudes. The average profit is the 
total amount of realised unpaid labor, and this total mass of 
unpaid labor, the same as the paid, dead or living, labor, is 
materialised in the total mass of commodities and money fall- 
ing to the share of the capitalists. 

The real difiiculty lies in the question : How is this equal- 
isation of profits into an average rate of profit brought about, 
seeing that it is evidently a result, not a point of departure ? 

It is obvious that an estimate of the values of the com- 
modities, for instance in money, can not be made until they 
have been exchanged. If we assmue such an estimate, we 
must regard it as the outcome of an actual exchange of com- 
modity-value for commodity-value. But how should such an 
exchange of commodities at their real values have come about ? 

Let us assume that all commodities in the different lines 
of production are sold at their real values. What would be 
the outcome ? According to our foregoing analyses, the rates 
of profit in the various spheres of production would differ 
considerably. It is quite obvious that we are dealing with 
two different things, whether on the one hand commodities 



2o6 Capitalist Production. 

are sold at their values (that is to say, sold in proportion to 
the value contained in them, or exchanged with one another at 
the price of their values), or whether, on the other hand, they 
are sold at such prices that their sale yields equal amounts of 
profits on equal masses of the respective capitals advanced 
for their production. 

If capitals employing unequal amounts of living labor 
are to produce unequal amounts of surplus-value, it must be 
assumed, at least to a certain degree, that the intensity of ex- 
ploitation, or the rate of surplus-value, are the same, or that 
any existing differences in them are balanced by real or imag- 
inary (conventional) elements of compensation. This v/ould 
presuppose a competition among the laborers and an equilibra- 
tion by means of their continual emigration from one sphere 
of production to another. Such a general rate of surplus- 
value — as a tendency, like all other economic laws — has 
been assumed by us for the sake of theoretical simplification. 
But in reality it is an actual premise of the capitalist mode 
of production, although it is more or less obstructed by prac- 
tical frictions causing more or less considerable differences 
locally, such as the settlement laws for English farm laborers. 
But in theory it is the custom to assume that the laws of cap- 
italist production evolve in their pure form. In reality, how- 
ever, there is always but an approximation. Still, this ap- 
proximation is so much greater to the extent that the capitalist 
mode of production is normally developed, and to the extent 
that its adulteration and amalgamation with remains of former 
economic conditions is outgrown. 

The whole difficulty arises from the fact that commodities 
are not exchanged simply as commodities, but as products of 
capitals, which claim equal shares of the total amount of sur- 
plus-value, if they are of equal magnitude, or shares propor- 
tional to their different magnitudes. And this claim is to be 
satisfied by the total price realised by a certain capital on the 
commodities produced by it within a certain space of time. 
This total price, again, is but the sum of the prices of the 
individual commodities produced by this capital. 

The essential point will become most visible, when we look 



Market Prices and Market Values. 207 

upon the matter in this way : Let ns assume that the laborers 
themselves are in possession of their respective means of pro- 
duction and exchange their commodities with one another. 
In that case these commodities would not be products of capi- 
tal. The value of the various instruments of labor and raw 
materials would differ according to the technical nature of the 
labors performed in the diiferent lines of production. Further- 
more, aside from the unequal value of the means of production 
employed by them, they would require different quantities of 
means of production for given quantities of labor, according to 
whether a certain commodity can be finished in one hour, an- 
other in one day, and so forth. Let us assume, also, that these 
laborers work on an average equal lengths of time, allowing for 
compensations due to different intensities of labor. In that 
case, two laborers, both working one day, would have in the 
commodities produced by them, first, an equivalent for their 
outlay, the cost-prices of the means of production consumed 
by their labor. These would differ according to the technical 
nature of their lines of production. In the second place, both 
of them would have created equal amounts of new value, 
namely the working day added by them to the means of 
production. This would comprise their wages plus the sur- 
plus-value, the last representing surplus-labor exceeding their 
necessary wants, the product of which would belong to them. 
If we were to use capitalist terms, we should say that both of 
them receive the same wages plus the same profit, or the same 
value expressed, say, by the product of a working day of 
ten hours. But in the first place, the values of their com- 
modities would differ. The commodities of I, for instance, 
might contain more value for each portion of the consumed 
means of production than the commodities of 11. And, to 
introduce all possible differences, we may assume right now 
that the commodities of I absorb more living labor, and con- 
sequently require more labor-time for their production, than 
the commodities of II. Then the value of the commodities 
of I and II, we repeat, differs considerably. So do the sums 
of the values of their commodities, which represent the prod- 
uct of the labor performed by laborers I and II in a certain 



2o8 Capitalist Production. 

time. The rates of profit would also differ considerably for 
I and II, assuming that we call rate of profit, in this case, the 
proportion of the surplus-value to the total value of the in- 
vested means of production. The means of subsistence daily 
consumed by I and II during production, which take the place 
of wages, will form that part of the invested capital which 
we would call variable capital under different circumstances. 
But the surplus-values would be the same for I and II, or, to 
express it more accurately, since both I and II receive the 
value of the product of one day's labor, both of them receive 
equal values after the value of the invested " constant " capi- 
tal has been deducted, and we may regard one portion of this 
remaining value as an equivalent for the means of subsistence 
consumed during production, and the other as surplus-value. 
If laborer I has higher expenses, they are made good by a 
greater portion of the value of his commodities replacing this 
" constant " part, and he has to reconvert a larger portion of 
the total value of his product into the material elements of 
this constant part, while laborer II, if he receives less for 
this purpose, has to reconvert so much less. Under these cir- 
cumstances a difference in the rates of profit would be of no 
concern, just as it is immaterial for the wage-laborer to-day 
what rate of profit may express the amount of surplus-value 
filched from him, and just as in international commerce the 
difference in the various national rates of profit is immaterial 
for the exchange of their commodities. 

The exchange of commodities at their values, or approxi- 
mately at their values, requires, therefore, a much lower stage 
than their exchange at their prices of production, which re- 
quires a relatively high development of capitalist produc- 
tion. 

Whatever may be the way in which the prices of the va- 
rious commodities are first fixed or mutually regulated, the 
law of value always dominates their movements. If the la- 
bor time required for the production of these commodities 
is reduced, prices fall ; if it is increased, prices rise, other cir- 
cumstances remaining the same. 

Aside from the fact that prices and their movements are 



Market Prices and Market Values. 209 

dominated bj the law of value, it is quite appropriate, under 
these circumstances, to regard the value of commodities not 
only theoretically, but also historically, as existing prior to 
the prices of production. This applies to conditions, in which 
the laborer owns his means of production, and this is the con- 
dition of the land-owning farmer and of the craftsman in the 
old world as well as the new. This agrees also with the view 
formerly expressed by me that the development of product 
into commodities arises through the exchange between differ 
ent communes, not through that between the members of the 
same commune. ^'^ It applies not only to this primitive con- 
dition, but also to subsequent conditions based on slavery or 
serfdom, and to the guild organisation of handicrafts, so long 
as the means of production installed in one line of production 
cannot be transferred to another line except under difficulties, 
so that the various lines of production maintain, to a certain 
degree, the same mutual relations as foreign countries or 
communistic groups. 

In order that the prices at which commodities are ex- 
changed with one another may correspond approximately to 
their values, no other conditions are required but the follow- 
ing: 1) The exchange of the various commodities must no 
longer be accidental or occasional, 2) So far as the direct ex- 
change of commodities is concerned, these commodities must 
be produced on both sides in sufficient quantities to meet mu- 
tual requirements, a thing easily learned by experience in 
trading, and therefore a natural outgrowth of continued trad- 
ing, 3) So far as selling is concerned, there must be no acci- 
dental or artificial monopoly which may enable either of the 
contracting sides to sell commodities above their value or com- 
pel others to sell below value. An accidental monopoly is one 
which a buyer or seller acquires by an accidental proportion 
of supply to demand. 

The assumption that the commodities of the various spheres 
of production are sold at their value implies, of course, only 

^'' In 1865, when Marx wrote these lines, they expressed as yet merely his 
" view." To-day, since we have the extended researches into the nature of primi- 
tive societies made from Maurer to Morgan, these things are accepted facts which 
hardly anyone cares to deny. — F. E. 

N 



210 Capitalist Production. 

that their value is the center of gravity around which prices 
fluctuate, and around which their rise and fall tends to an 
equilibrium. We shall also have to note a market value, 
which must be distinguished from the individual value of the 
commodities produced bj the various producers. Of this 
more anon. The individual value of some of these commod- 
ities will be below the market-value, that is to say, they re- 
quire less labor-time for their production than is expressed in 
the market-value, while that of others will be above the mar- 
ket-value. We shall have to regard the market-value on one 
side as tlie average value of the commodities produced in a 
certain sphere, and on the other side as the individual value 
of commodities produced under the average conditions of their 
respective sphere of production and constituting the bulk of 
the products of that sphere. It is only extraordinary com- 
binations of circumstances under which commodities produced 
under the least or most favorable conditions regulate the 
market-value, which forms the center of fluctuation for the 
market-prices, which are the same, however, for the same 
kind of commodities. If the ordinary demand is satisfied by 
the supply of commodities of average value, that is to say, 
of a value midway between the two extremes, then those com- 
modities, whose individual value stands below the market- 
value, realise an extra surplus-value, or surplus-profit, while 
those, whose individual value stands above the market-value 
cannot realise a portion of the surplus-value contained in 
them. 

It does not do any good to say that the sale of the com- 
modities produced under the most unfavorable conditions 
proves that they are required for keeping up the supply. If 
the price in the assumed case were higher than the average 
market-value, the demand would be greater. At a certain 
price, any kind of commodities may occupy so much room on 
the market. This room does not remain the same in the case 
of a change of prices, unless a higher price is accompanied by 
a smaller quantity of commodities, and a lower price by a 
larger quantity of commodities. But if the demand is so 
strong that it does not let up v^'hen the price is regulated by 



Market Prices and Market Values. 21 i 

the value of the commodities produced under the most un- 
favorable conditions, then these commodities determine the 
market-value. This is not possible unless the demand exceeds 
the ordinary, or the supply falls below it. Finally, if the 
mass of the produced commodities exceeds the quantity which 
is ordinarily disposed of at average market-values, then the 
commodities produced under the most favorable conditions 
regulate the market-value. These commodities may be sold 
exactly or approximately at their individual values, and in 
that case it may happen that the commodities produced under 
the least favorable conditions do not realise even their cost- 
prices, while those produced under average conditions realise 
only a portion of the surplus-value contained in them. The 
statements referring to market-value apply also to the price of 
production, if it takes the place of market-value. The price 
of production is regulated in each sphere, and this regulation 
depends on special circumstances. And this price of produc- 
tion is in its turn the center of gravity around which the 
daily market-prices fluctuate and tend to balance one another 
within definite periods. (See Eicardo on the determination 
of the price of production by those who produce under the 
least favorable conditions.) 

]^o matter what may be the way in which prices are regu- 
lated, the result always is the following: 

1) The law of value dominates the movements of prices, 
since a reduction or increase of the labor-time required for 
production causes the prices of production to fall or to rise. 
It is in this sense that Eicardo (who doubtless realised that 
his prices of production differed from the value of commodi- 
ties) says that " the inquiry to which he wishes to draw the 
reader's attention relates to the effect of the variations in the 
relative value of commodities, and not in their absolute value." 

2) The average profit which determines the prices of pro- 
duction must always be approximately equal to that quantity 
of surplus-value, which falls to the share of a certain indi- 
vidual capital in its capacity as an aliquot part of the total 
social capital. Take it that the average rate of profit, and 
therefore the average profit, are expressed by an amount of 



^12 Capitalist Prodiiction. 

money of a higlier value than the money-value of the actual 
average surplus-value. So far as tlie capitalists are concerned 
in that case, it is immaterial whether they charge one an- 
other a profit of 10 or of 15%. The one of these percentages 
does not cover any more actual commodity-value than the 
other, since the overcharge in money is mutual. But so far 
as the laborer is concerned (the assumption being that he re- 
ceives the normal wages, so that the raising of the average 
profit does not imply an actual deduction from his wages, in 
other words, does not express something entirely different 
from the normal surplus-value of the capitalist), the rise in 
the price of commodities due to a raising of the average profit 
must be accompanied by a corresponding rise of the money- 
expression for the variable capital. As a matter of fact, such 
a general nominal raising of the rate of profit and the average 
profit above the limit provided by the proportion of the actual 
surplus-value to the total invested capital is not possible with- 
out carrying in its wake an increase of wages, and also an in- 
crease in the prices of the commodities which constitute the 
constant capital. The same is true of the opposite case, that 
of a reduction of the rate of profit in this way. ISTow, since 
the total value of the commodities regulates the total surplus- 
value, and this the level of the average profit and the average 
rate of profit — always understanding this as a general law, 
as a principle regulating the fluctuations — it follows that 
the law of value regulates the prices of production. 

Competition first brings about, in a certain individual 
sphere, the establishment of an equal market-value and mar- 
ket-price by averaging the various individual values of the 
commodities. The competition of the capitals in the different 
spheres then results in the price of production which equal- 
ises the rates of profit between the different spheres. This 
last process requires a higher development of capitalist pro- 
duction than the previous process. 

In order that commodities of the same sphere of produc- 
tion, the same kind, and approximately the same quality, may 
be sold at their value, the following two requirements must be 
fulfilled: 



Market Prices and Market Values. 21^ 

1) The different individual values must have been aver- 
aged into one social value, the above-named market-value, and 
this implies a competition between the producers of the 
same kind of commodities, and also the existence of a com- 
mon market, on which they offer their articles for sale. In 
order that the market-price of identical commodities, which 
however are produced under different individual circum- 
stances, may correspond to the market-value, may not 
differ from it by exceeding it or falling below it, it is 
necessary that the different sellers should exert sufficient pres- 
ure upon one another to bring that quantity of commodities 
on the market which social requirements demand, in other 
v/ords, that quantity of commodities whose market-value so- 
ciety can pay. If the quantity of products exceeds this de- 
mand, then the commodities must be sold below their market- 
value; vice versa, if the quantity of products is not large 
enough to meet this demand, or, what amounts to the same, 
if the pressure of competition among the sellers is not strong 
enough to bring this quantity of products to market, then the 
commodities are sold above their market-value. If the mar- 
ket-value is changed, then tKere will also be a change in the 
conditions under w^hich the total quantity of commodities 
can be sold. If the market-value falls, then the average so- 
cial demand increases (always referring to the solvent de- 
mand) and can absorb a larger quantity of commodities within 
certain limits. If the market-value rises, then the solvent so- 
cial demand for commodities is reduced and smaller quanti- 
ties of them are absorbed. Hence if supply and demand reg- 
ulate the market-price, or rather the deviations of market- 
prices from market-values, it is true, on the other hand, that 
the market-value regulates the proportions of supply and de- 
mand, or the center around which supply and demand cause 
the market-prices to fluctuate. 

If we look closer at the matter, we find that the conditions 
determining the value of some individual commodity become 
effective, in this instance, as conditions determining the value 
of the total quantities of a certain kind. For, generally speak- 
ing, capitalist production is from the outset a mass-production. 



214 Capitalist Production. 

And even other, less developed, modes of production carry- 
small quantities of products, the result of the work of many 
small producers, to market as co-operative products, at least 
in the main lines of production, concentrating and accumulat- 
ing them for sale in the hands of relatively few merchants. 
Such commodities are regarded as co-operative products of 
an entire line of production, or of a greater or smaller part 
of this line. 

We remark by the way that the " social demand," in other 
words, that Avhich regmlates the principle of demand, is es- 
sentially conditioned on the mutual relations of the diiferent 
economic classes and their relative economic positions, that is 
to say, first, on the proportion of the total surplus-value to 
the wages, and secondly, on the proportion of the various parts 
into which surplus-value is divided (profit, interest, ground- 
rent, taxes, etc.). And this shows once more that absolutely 
nothing can be explained by the relation of supply and de- 
mand, unless the basis has first been ascertained, on which 
this relation rests. 

Although both commodity and money represent units of 
exchange-value and use-value, we have already seen in volume 
I, chapter I, 3, that in buying and selling both of these func- 
tions are polarised at the two extremes, the commodity (seller) 
representing the use-value, and the money (buyer) the ex- 
change-value. It was one of the first conditions for the sale 
of a commodity that it should have a use-value and satisfy 
some social need. The other essential condition was that the 
quantity 'ol labor contained in a certain commodity should 
represent socially necessary labor, so that its individual value 
(and what amounts to the same under the present assumption, 
its selling price) should coincide with its social value. ^^ 

ISTow let us apply this to the mass of commodities on the 
market, which represent the product of a whole sphere of 
production. The matter will be most easily explained by re- 
garding this whole mass of commodities, coming from one line 
of production, as one single commodity, and the sum of the 
prices of the many identical commodities as one price, In 

^ Karl Marx, Critique of Political Economy, Berlin, 1859. 



Market Prices and Market Values. 215 

that case tlie statements made in regard to one individual com- 
modity apply literally to the mass of commodities sent to the 
market by one entire line of production. The postulate that 
the individual value of a commodity should correspond to 
its social value has then the significance that the total quan- 
tity of commodities contains the quantity of social labor neces- 
sary for its production, and that the value of this mass is 
equal to its market-value. 

ISTow let us assume that the bulk of these commodities has 
been produced under approximately the same normal condi- 
tions of social labor, so that this social value is at the same 
time identical with the individual value of the indivdual com- 
modities 'constituting this mass. In that case, a relatively 
small portion of these commodities may have been produced 
belovp^, and another above, these conditions, so that the indi- 
vidual value of the one portion is greater, and that of the 
other smaller, than the average value of the bulk of the com- 
modities, but in such proportions that these extremes balance 
one another. The average value of the commodities in these 
extremes is then equal to the average value of the great bulk 
of average commodities. Under such circumstances, the mar- 
ket-value is determined by the value of the commodities pro- 
duced under average conditions.^® The value of the entire 
mass of commodities is equal to the actual sum of the values 
of all individual commodities combined, no matter whether 
they were produced under average conditions, or under con- 
ditions above or below the average. In this case, the market- 
value, or the social value, of the mass of commodities — the 
necessary labor time contained in them — is determined by 
the value of the average bulk. 

Let us assume, on the other hand, that the total mass of 
commodities brought to market remains the same, while the 
value of the commodities produced under the least favorable 
conditions is not balanced by the value of the commodities 
produced under the most favorable conditions, so that the 
mass of commodities produced under the least favorable con- 
ditions constitutes a relatively large quantity, compared to the 

^ Karl Marx, Critique of Political Economy, Berlin, 1859. 



2i6 Capitalist Production. 

average mass as well as to the other extreme. In that case 
the mass produced -under the least favorable conditions de- 
termines the market-value, or social value. 

Take it, finally, that the mass of commodities produced 
under the most favorable conditions is considerably in excess 
of the mass produced under the least favorable conditions, and 
is large even compared with the average mass. Then the 
mass produced under the most favorable conditions determines 
the market-value. We leave aside the question of a trans- 
fer of the market, whenever the mass of commodities pro- 
duced under the most favorable conditions regulates the mar- 
ket-price. We are not dealing here with the market-price in 
so far as it differs from the market-value, but with the various 
modes of determining the market-value itself.^'^ 

In fact, assuming the strictest case (which, of course, 
is realised only approximately and with a thousand mod- 
ifications) of our first illustration, the market-value reg- 
ulated by the average values of the total mass of commodities 
is equal to the sum of their individual values, although this 
market-value is forced as an average value upon the commodi- 
ties produced at the extremes. Those who produce under the 
worst conditions must then sell their commodities below their 
individual values; those producing under the best conditions 
sell them above their individual values. 

In the second case, the two lots of commodities produced 

3° The controversy between Storch and Ricardo, incidental to their discussion 
of ground rent (a controversy which is merely referring to the same object, 
while the two opponents take no notice of one another) whether the market- 
value (or rather what they call market-price and price of production respectively) 
is regulated by the commodities produced under the least favorable conditions 
(Ricardo), or by those produced vmder the most favorable circumstances (Storch), 
resolves itself into the fact that both are right and both wrong, and that both 
c,f them have left out of consideration the average case. Compare Corbett on 
the cases, in which the price is regulated by the commodities produced under 
the most favorable conditions. — " It is not meant to be asserted by him (Ricardo) 
that two particular lots of two different articles, as a hat and a pair of shoes, 
exchange with one another when those two particular lots were produced by equal 
quantities of labor. By ' commodity ' we must here understand the ' description 
of commodity,' not a particular individual hat, pair of shoes, etc. The whole 
labor which produces all the hats in England is to be considered, for this pur- 
pose, as divided among all the hats. This seems to me not to have been expressed 
at first, and in the general statements of this doctrine. (Observations on some 
verbal disputes in Political Economy, etc. London, IS'^l, pnges 53, Z-i.) 



Market Prices and Market Values. 2\y 

at the two extremes do not balance one another. The lot 
produced under the worst conditions decides the question. 
Strictly speaking, the average price, or the market-value, of 
every individual commodity, or of every aliquot part of the 
total mass, would now he determined by the total value of 
the mass as ascertained by the addition of the values of the 
commodities produced under different conditions, and by the 
aliquot part of this total value falling to the share of the in- 
dividual commodity. The market-value thus ascertained 
would be above the individual value, not only of the commodi- 
ties belonging to the most favorable extreme, but also of those 
belonging to the average lot. But still it would be below the 
individual value of the commodities produced at the most un- 
favorable extreme. The extent to which this market-value 
would approach the individual value of this extreme, or 
coincide with it, would depend entirely on the volume occu- 
pied in that sphere of commodities by the lot of commodities 
produced at the unfavorable extreme. If the demand exceeds 
the supply but slightly, then the individual value of the un- 
favorably produced commodities regulates the market-price. 

Finally, if the lot of commodities produced at the most 
favorable extreme occupies the greatest space, as it does in 
the third case, compared not only to the other extreme, but 
also to the average lot, then the market-value falls below the 
average value. The average value, computed by the addition 
of the sum of values of the two extremes and of the middle, 
stands here below that of the middle, and approaches it or 
recedes from it, according to the relative space occupied by 
the favorable extreme. If the demand is weak compared to 
the supply, then the favorably situated part, whatever may bs 
its size, makes room for itself forcibly by contracting its price 
down to its individual value. The market-value cannot coin- 
cide with this individual value of the commodities produced 
under the most favorable conditions, except when the supply 
far exceeds the demand. 

This mode of determining market-values, which we have 
here outlined abstractly, is promoted on the real market by 
competition among the buyers, provided that the demand is 



2i8 Capitalist Production. 

just large enough to absorb the quantity of commodities at 
the values fixed in this manner. And this brings us to the 
second point. 

2) To say that a commodity has a use-value is merely to 
say that it satisfies some social want. So long as we were 
dealing simply with individual commodities, we could as- 
sume that the demand for any one commodity — its price im- 
plying its quantity — ■ existed without inquiring into the ex- 
tent to which this demand required satisfaction. But this 
question of the extent of a certain demand becomes essential, 
whenever the product of some entire line of production is 
placed on one side, and the social demand for it on the other. 
In that case it becomes necessary to consider the amount, the 
quantity, of this social demand. 

In the foregoing statements referring to market-value, the 
assumption was that the mass of the produced commodities re- 
mains the same given quantity, and that a change takes place 
only in the proportions of the elements constituting this mass 
and produced under different conditions, so that the market- 
value of the same mass of commodities is differently regu- 
lated. Let us suppose that this mass is of a quantity equal to 
the ordinary supply, leaving aside the possibility that a portion 
of the produced commodities may be temporarily withdravai 
from the market. 'Now, if the demand for this mass also 
remains the same, then this commodity will be sold at its 
market-value ; no matter which one of the three aforemen- 
tioned cases may regulate this market-value. This mass of 
commodities does not only satisfy a demand, but satisfies it to 
its full social extent. On the other hand, if the quantity is 
smaller than the demand for it, then the market-prices differ 
from the market-values. And the first differentiation is that 
the market-value is always regulated by the commodity pro- 
duced under the least favorable circumstances, if the supply 
is too small, and by the commodity produced under the most 
favorable conditions, if the supply is too large. In other 
words, one of the extremes determines the market-value, in 
spite of the fact that the proportion of the masses produced 
under different conditions ought to bring about a different I'e- 



Market Prices and Market Values. 2ig 

suit. If the difference between demand and supply of the 
product is very considerable, then the market-price will like- 
wise differ considerably from the market-value in either di- 
rection. ISTow, the difference between the quantity of the 
produced commodities and the quantity of commodities which 
fixes their sale at their market-value may be due to two 
reasons. Either the quantity itself varies, by decreasing or 
increasing, so that there would be a reproduction on a different 
scale than the one which regulated a certain market-value. 
If so, then the supply changes while the demand remains un- 
changed, and we have a relative overproduction or underpro- 
duction. Or, the reproduction, and the supply, remain the 
same, while the demand is reduced or increased, which may 
take place for several reasons. If so, then the absolute mag- 
nitude of the supply is unchanged, while its relative magni- 
tude, compared to the demand, has changed. The effect is 
the same as in the first case, only it acts in the opposite direc- 
tion. Finally, if changes take place on both sides, either in 
opposite directions, or, if in the same- direction, not to the 
same extent, in other words, if changes take place on both 
sides which alter the former proportion between these sides, 
then the final result must always lead to one of the two above- 
mentioned cases. 

The real difficulty in determining the meaning of the con- 
cepts supply and demand is that they seem to amount to a 
tautology. Consider first the supply, either the product on 
the market, or the product which can be supplied to the 
market. In order to avoid useless details, we shall consider 
only the mass annually reproduced in every given line of pro- 
duction and leave out of the question the varying faculty of 
some commodities to withdraw from the market and go into 
storage for consumption at a later time, for instance next 
year. This annual reproduction is expressed in a certain 
quantity, in weight or numbers, according to whether this 
mass of commodities is measured continuously or discontinu- 
ously. They represent not only use-value satisfying human 
wants, but these use-values are on the market in definite quan- 
tities. In the second place, this quantity of commodities has 



220 Capitalist Production. 

a definite market-value, which may be expressed by a multiple 
of the market-value of the individual commodity, or of the 
measure, which serve as units. There is, then, no necessary 
connection between the quantitative volume of the commodities 
on the market and their market-value, since many commodi- 
ties have, for instance, a high specific value, others a low 
specific value, so that a given sum of values may be repre- 
sented by a very large quantity of some, and a very small 
quantity of other commodities. There is only this connection 
between the quantity of articles on the market and the market- 
value of these articles : Given a certain basis for the produc- 
tivity of labor in every particular sphere of production, the 
production of a certain quantity of articles requires a definite 
quantity of social labor time; but this proportion differs in 
different spheres of production and stands in no internal re- 
lation to the usefulness of these articles or the particular na- 
ture of their use-values. Assuming all other circumstances 
to be equal, and a certain quantity a of some commodity to 
cost h labor time, a quantity na of the same commodity 
will cost nh labor-time. Furthermore, if society wants to 
satisfy some demand and have articles produced for this pur- 
pose, it must pay for them. Since the production of com- 
modities is accompanied by a division of labor, society buys 
these articles by devoting to their production a portion of 
its available labor-time. Society buys them by spending a 
definite quantity of the labor-time over which it disposes. 
That part of society, to which the division of labor assigns 
the task of employing its labor in the production of the de- 
sired article, must be given an equivalent for it by other 
social labor incorporated in articles which it wants. There 
is, however, no necessary, but only an accidental, connection 
between the volume of society's demand for a certain article 
and the volume represented by the production of this article 
in the total production, or the quantity of social labor spent 
on this article, the aliquot part of the total labor-power spent 
by society in the production of this article. True, every in- 
dividual article, or every definite quantity of any kind of 
commodities, contains, perhaps, only the social labor required 



Market Prices and Market Values. 221 

for its production, and from this point of view the market- 
value of this entire mass of commodities of a certain kind rep- 
resents only necessary labor. ^Nevertheless, if this com- 
modity has been produced in excess of the temporary demand 
of society for it, so much of the social labor has been vt^asted, 
and in that case this mass of commodities represents a much 
smaller quantity of labor on the market than is actually in- 
corporated in \t.'f^ (Only when production will be under the 
conscious and prearranged control of society, will society 
establish a direct relation between the quantity of social labor 
time employed in the production of definite articles and the 
quantity of the demand of society for them.)\. The commodi- 
ties must then be sold below their market-value, and a portion 
of them may even become unsaleable. The opposite takes 
place, if the quantity of social labor employed in the produc- 
tion of a certain kind of commodities is too small to meet the 
social demand for them. But if the quantity of social labor 
spent in the production of a certain article corresponds to 
the social demand for it, so that the quantity produced is that 
which is the ordinary on that scale of production and for that 
.same demand, then the article is sold at its market-value. 
The exchange, or sale, of commodities at their value is the 
rational way, the natural law of their equilibrium. It must 
be the point of departure for the explanation of deviations 
from it, not vice versa the deviations the basis on which this 
law is explained. 

ISTow let us look at the other side, the demand. 

Commodities are bought either as means of production or 
means of subsistence, in order to be used for productive or 
individual consumption. It does not alter matters that some 
commodities may serve both ends. There is, then, a demand 
for them on the part of the producers (who are capitalists in 
this case, since we have assumed that the means of produc- 
tion have been transformed into capital) and on the part of 
the consumers. It appears at first sight as though these 
two sides ought to have a corresponding quantity of social 
demands offset by a corresponding quantity of social sup- 
plies in the various lines of production. If the cotton in- 



222 ' Capitalist Production. 

dustry is to accomplish its annual reproduction on a given 
scale, it must produce the usual quantity of cotton and an 
additional quantity determined by the annual extension of 
reproduction through the necessities of accumulating cap- 
ital, always assuming other circumstances to remain the 
same. This is also true of means of subsistence. The 
working class must find at least the same quantity of necessi- 
ties on hand, if it is to continue living in the accustomed way, 
although these necessities may be of different kinds and differ- 
ently distributed. And there must be an additional quantity 
to allow for the annual increase of population. This applies 
with more or less modification to the other classes. 

It would seem, then, that there is on the side of demand a 
definite magnitude of social wants which require for their 
satisfaction a definite quantity of certain articles on the mar- 
ket. But the quantity demanded by these wants is very 
elastic and changing. Its fixedness is but apparent. If the 
means of subsistence were cheaper, or money-wages higher, 
the laborers would buy more of them, and a greater " social 
demand " would be manifested for this kind of commodities, 
leaving aside the question of paupers, whose " demand " is 
even below the narrowest limits of their physical wants. On 
the other hand, if cotton were cheaper, the demand of the cap- 
italists for it would increase, more additional capital would 
be thrown into the cotton industry, etc. It must never be for- 
gotten that the demand for productive consumption is a de- 
mand of capitalists, under our assumption, and that its essen- 
tial purpose is the production of surplus-value, so that com- 
modities are produced only to this end. Still this does not 
argue against the fact that the capitalist as a buyer, for in- 
stance of cotton, represents the demand for this cotton. More- 
over it is immaterial to the seller of cotton, whether the buyer 
converts it into shirting or into guncotton, or whether he 
intends to make it into wads for his and the world's ears. 
But it does exert a considerable influence on the way in 
Avhich the capitalist acts as a buyer. His demand for cotton 
is essentially modified by the fact that he disguises thereby 
his real demand, that of making profits. The limits within 



Market Prices and Market Values. 223 

which the need for commodities on the market^ the demand, 
differs quantitatively from the actual social need, varies nat- 
urally considerably for different commodities ; in other words, 
the difference between the demanded quantity of commodities 
and that quantity which would be demanded, if the money- 
prices of the commodities, or other conditions concerning the 
money or living of the buyers, were different. 

^Nothing is easier than to realise the inequalities of de- 
mand and supply, and the resulting deviation of market- 
prices from market-values. The real difficulty consists in de- 
termining what is meant by balancing supply and demand. 

Demand and supply balance one another, when their mu- 
tual proportions are such that the mass of commodities of a 
definite line of production can be sold at their market-value, 
neither above nor below it. That is the first thing we hear. 

The second is this: If the commodities are sold at their 
market-values, then supply and demand balance. 

If demand and supply balance, then they cease to have any 
effect, and for this very reason commodities are sold at their 
market-values. If two forces exert themselves equally in op- 
posite directions, they balance one another, they have no in- 
fluence at all on the outside, and any phenomena taking place 
at the same time must be explained by other causes than the 
influence of these forces. If demand and supply balance one 
another, they cease to explain anything, they do not affect 
market-values, and therefore leave us even more in the dark 
than before concerning the reasons for the expression of the 
market-value in just a certain sum of money and no other. 
It is evident that the essential fundamental laws of produc- 
tion cannot be explained by the interaction of supply and de- 
mand (quite aside from a deeper analysis of these two mo- 
tive forces of social production, which would be out of place 
here). For these laws cannot be observed in their pure state, 
until the effects of supply and demand are suspended, are 
balanced. As a matter of fact supply and demand never bal- 
ance, or, if they do, it is by mere accident, it is scientifically 
rated at zero, it is considered as not happening. But political 
economy assumes that supply and demand balance one an- 



221 Capitalist Production. 

other. Why ? Tor no other reason, primarily, than to he 
ahle to study phenomena in their fundamental relations, in 
that elementary form which corresponds to their conception, 
that is to say, to study them unhampered by the disturbing 
interference of supply and demand. The other reason is to 
find the actual tendencies of economic movements and to fix 
them, as it were. Tor the inequalities are of an antagonistic 
nature, and since they continually follow one after another, 
they balance one another by their opposite movements, by 
their opposition. Since supply and demand never balance 
each other in any given case, their differences follow one 
another in such a way that supply and demand are always 
balanced only when looking at them from the point of view 
of a greater or smaller period of time. For the result of a 
deviation in one direction is a deviation in the opposite direc- 
tion. Such a balance is only an average of past movements, 
a result of a continual movement in contradictions. By this 
means the market-prices differing from the market-values 
reduce one another to the average of market-values and bal- 
ance the different plus and minus in their divergencies. And 
this average figure has not merely a theoretical, but also a 
practical, value for capital, since its investment is calculated 
on the fluctuations and compensations of more or less fixed 
periods of time. 

The relation of demand and supply explains, therefore, 
on the one hand only the deviations of market-prices from 
market-values, and on the other the tendency to balance these 
deviations, in other words, to suspend the effect of the relation 
of demand and supply. (Such exceptions as commodities 
having prices without having any value are not considered 
here.) Demand and supply may bring about a balance in 
the effects caused by their inequalities in many different ways. 
For instance, if the demand, and consequently the market- 
price, fall, capital may be Avithdrawn and the supply reduced. 
But instead it may happen that the market-value itself is re- 
duced and balanced with the market-price through inventions, 
which reduce the necessary labor time. Vice versa, if the 
demand increases, and consequently the market-price rises 



Market Prices and Market Values. 225 

above the market-value, too mucli capital may flow into this 
line of production and production may be increased to such an 
extent, that the market-price finally falls below the market- 
value. Or, it may lead to a rise of prices which cuts down 
the demand. It may also bring about a rise in the market- 
value itself for a shorter or longer time, in some lines of pro- 
duction, in which a portion of the desired products must be 
produced under more imfavorable conditions during this 
period. 

If demand and supply determine the market-price, so does 
the market-price, and in the further analysis the market- 
value determine demand and supply. This is obvious in the 
case of demand, which moves in opposition to price, rising 
when prices fall, and falling when prices rise. But it may 
also be noted in the case of supply. For the prices of the 
means of production which are incorporated in the supplied 
commodities determine the demand for these means of pro- 
duction, and thus the supply of the commodities whose supply 
implies the demand for these means of production. The 
prices of cotton are determining elements for the supply of 
cotton goods. 

This confusion of a determination of prices by demand and 
supply, and at the same time a determination of supply and 
demand by prices, is worse confounded by the determination 
of the supply by the demand, and the demand by supply, of 
the market by production, and of production by the market.^ ^ 

'1 The following sagacious statements are great nonsense: "Where the quantity 
of wages, capital, and land, required to produce an article, have become different 
from what they were, that which Adam Smith calls the natural price of it, is 
also different, and that price which was previously its natural price, becomes, 
with reference to this alteration, its market-price; because, though neither the 
supply, nor the quantity wanted may have changed " — both of them change here, 
just because the market-value, or, in the case of Adam Smith, the price of pro- 
duction, changes in consequence of a change of value — "that supply is not now 
exactly enough for those persons who are able and willing to pay what is now 
the cost of production, but is either greater or less than that; so that the pro- 
portion between the supply, and what is, with reference to the new cost of pro- 
duction, the effectual demand, is different from what it was. An alteration in the 
rate of supply will then take place, if there is no obstacle in the way of it, and 
at last bring the commodity to its new natural price. It may then seem good 
to some persons to say that, as the commodity gets to its natural price by an 
alteration in its supply, the natural price is as much owing to one proportion 
between the demand and supply, as the market-price is to another; and conse- 

O 



226 Capitalist Production. 

Even the ordinary economist (see our foot-note) recognizes 
that the proportion between supply and demand may vary in 
consequence of a change in the market-value of commodities, 
without a change in the demand of supply by external cir- 
cumstances. The author of the Observations continues after 
the passage quoted in the foot-note : " This proportion " 
(between demand and supply) " however, if we still mean by 
' demand ' and ' natural price ' what we meant just now, 
when referring to Adam Smith, must always be a proportion 
of equality; for it is only when the supply is equal to the 
effectual demand, that is, to that demand, which will pay 
neither more nor less than the natural price, that the natural 
price is in fact paid ; consequently there may be two very 
different natural prices, at different times, for the same com- 
modity, and yet the proportion which the supply bears to 
the demand, be in both cases the same, namely the proportion 
of equality." It is admitted, then, that with two different 
natural prices of the same commodity at different times de- 
mand and supply may balance one another and must balance 
one another, if the commodity is to be sold at its natural 
price in both instances. Since there is no difference in the 
proportion of supply and demand in either case, but only a 
difference in the magnitude of the natural price itself, it 
follows that this price is determined independently of de- 
mand and supply, and cannot very well be determined - by 
them. 

In order that a commodity may be sold at its market-value, 
that is to say, in proportion to the necessary social labor con- 
tained in it, the total quantity of social labor devoted to the 

quently, that the natural price, just as much as the market-price, depends on the 
proportion that demand and supply bear to each other. (The great principle of 
demand and supply is called into action to determine what A. Smith calls natural 
prices as well as market-prices. Malthus.)"^ — Observations on certain verbal dis- 
putes, etc., London, 1821, pages 60 and 61. — The good man does not grasp the 
fact that it is precisely the change in the cost of production, and thus in the 
value, which caused a change in the demand, in the present case, and thus in the 
proportion between demand and supply, and that this change in the demand may 
bring about a change in the supply. This would prove just the reverse of what 
our good thinker wants to prove. It would prove that the change in the cost 
of production is by no means due to the proportion of demand and supply, but 
rather regulates this proportion. 



Market Prices and Market Values. 22y 

total mass of this kind of commodities must correspond to the 
quantity of the social demand for them, meaning the solvent 
social demand. Competition, the fluctuations of market- 
prices which correspond to tlie fluctuations of demand and 
supply, tend continually to reduce the total quantity of labor 
devoted to each kind of commodities to this scale. 

The proportion of supply and demand repeats, in the first 
place, the relation of the use-value and exchange-value of com- 
modities, of commodity and money, of buyer and seller; in 
the second place, the relation of producer and consumer, al- 
though both of them may be represented by third merchants. 
In studying buyers and sellers, it is sufficient to confront 
them individually, in order to set forth their relations. Three 
individuals sufiice for the complete metamorphosis of com- 
modities, and therefore for the complete transactions of sale 
and purchase. A converts his commodity into the money of 
B, to whom he sells his commodity, and he reconverts his 
money into commodities which he buys for it from C. The 
whole transaction takes place between these three. Further- 
more: In the study of money it had been assumed that the 
commodities are sold at their values, because there was no 
reason to take into consideration any divergence of prices 
from values, it being a question of changes of form experi- 
enced by the commodities in their transformation into money 
and their reconversion from money into commodities. As 
soon as a commodity has been sold and a new commodity 
bought with the receipts, we have the entire metamorphosis 
before us, and for the consideration of this process it is imma- 
terial whether the price of the commodity stands above or 
below its value. The value of the commodity is essential as 
a basis, because the concept of money cannot be developed on 
any other foundation but this one, and because price, in its 
general meaning, is but value in the form of money. Of 
course, it is assumed in the study of money as a medium of 
circulation that more than one metamorphosis of a certain 
commodity takes place. It is the social interrelation of these 
metamorphoses which is studied. Only by this means do we 
arrive at the circulation of money and at the development 



228 Capitalist Production. 

of its function as a medium of circulation. Wliile this con- 
nection of the matter is very important for the transition of 
money into its function of a circulating medium, and for its 
resulting change of form, it is of no moment for the transac- 
tion between the individual buyer and seller. 

In a question of supply and demand, however, the supply 
means the sum of the sellers, or producers, of a certain kind 
of commodities, and the demand the sum of the buyers, or 
consumers, of the same kind of commodities (both produc- 
tive and individual consumers). There two bodies react on 
one another as units, as aggregate forces. The individual 
counts here only as a part of a social power, as an atom of 
some mass, and it is in this form that competition enforces the 
social character of production and consumption. 

That side of competition, which is momentarily the weaker, 
is also that in which the individual acts independently of the 
mass of his competitors and often works against them, whereby 
the dependence of one upon the other is impressed upon them, 
while the stronger side always acts more or less unitedly 
against its antagonist. If the demand for this particular kind 
of commodities is larger than the supply, then one buyer out- 
bids another, within certain limits, and thereby raises the 
price of the commodity for all of them above the market-price, 
while on the other hand the sellers nnite in trying to sell at 
a high price. If, vice versa, the supply exceeds the demand, 
some one begins to dispose of his goods at a cheaper rate and 
the others must follow, while the buyers unite in their efforts 
to depress the market-price as much as possible below the mar- 
ket-value. The common interest is appreciated only so long 
as each gains more by it than without it. And common action 
ceases, as soon as this or that side becomes the weaker, when 
each one tries to get out of it by his own devices with as little 
loss as possible. Again, if some one produces more cheaply 
and can sell more goods, thus assuming more room on the 
market by selling below the current market-price, or market- 
value, he does it, and thereby he begins an action which grad- 
ually compels the others to introduce the cheaper mode of pro- 
duction and which reduces the socially necessary labor to a 



Market Prices and Market Values. 229 

new, and lower, level. If one side has the advantage, every 
one belonging to it gains. It is as though they had exerted 
their common monopoly. If one side is the weaker, then 
every one may try on his own hook to be the stronger (for in- 
stance, any one working with lower costs of production), or 
at least to get off as easily as possible, and in that case he 
does not care in the least for his neighbor, although his ac- 
tions affect not only himself, but also all his fellow strugglers.^^ 

Demand and supply imply the transformation of values into 
market-prices, and to the extent that they proceed on a capi- 
talist basis, to the extent that the commodities are products of 
capital, they are based on capitalist processes, that is, on quite 
different and more complicated conditions than tlie mere pur- 
chase and sale of goods. In these capitalist processes it is 
not a question of the formal conversion of the value of com- 
modities, into prices, not a question of a mere change of form. 
It is a matter of definite differences in quantity between mar- 
ket-prices and market-values, and, further, prices of produc- 
tion. In simple purchases and sales, it is enough to consider 
merely the producers of articles as such. But supply and de- 
mand, in a wider analysis, imply the existence of different 
classes and sections of classes which divide the total revenue 
of society among themselves and consume it as revenue among 
themselves, which, therefore, constitute the demand in the 
form of revenue. On the other hand, the attempt to grasp the 
question of the supply and demand among the producers as 
such requires an analysis of the total conformation of the cap- 
italist process of production. 

Under capitalist production it is not a question of merely 
throwing a certain mass of values into circulation and ex- 
changing that mass for equal values in some other form, 
whether of money or other commodities, but it is also a ques- 

'2 " If each man of a class could never have more than a given share, or aliquot 
part of the gains and possessions of the whole, he would readily combine to raise 
the gains" (he does it as soon as the proportion of demand to supply permits it); 
" this is monopoly. But where each man thinks that he may any way increase 
the absolute amount of his own share, though by a process which lessens the 
whole amount, he will often do it; this is competition." An Inquiry into thost 
Principles respecting the Nature of Demand, etc. London, page 105, 



230 Capitalist Production. 

tion of advancing capital in production and realising on it 
as much surplus-value, or profit, in proportion to its magni- 
tude, as any other capital of the same or of other magnitudes 
in whatever line of production. It is a question, then, of sell- 
ing the commodities at least at prices which will yield the 
average profit, in other words, at prices of production. Capi- 
tal comes in this form to a realisation of the social nature of 
its power, in which every capitalist participates in proportion 
to his share in the total social capital. 

In the first place, capitalist production is essentially in- 
different to the particular use-value, or the peculiarity, of any 
commodity produced by it. In every sphere of production 
it is the sole purpose of production to secure surplus-value, to 
appropriate in the product of labor a certain quantity of un- 
paid labor. And it is likewise the nature of the wage-labor 
subject to capital to be indifferent to the specific character of 
its labor, to transform itself in accord with the requirements 
of capital, and to submit to being transferred from one sphere 
of production to another. 

In the second , place, one sphere of production is now as 
good or as bad as another. Every one of them yields the 
same profit, and every one of them would be useless, if the 
commodities produced by them did not satisfy some social 
need. 

!N^ow, if the commodities are sold at their values, then, as 
we have shown, considerably different rates of profit arise in 
the various spheres of production, according to the different 
organic composition of the masses of capital invested in them. 
But capital withdraws from spheres with low rates of profit 
and invades others which yield a higher rate. By means of 
this incessant emigration and immigration, in one word, by 
its distribution among the various spheres in accord with a 
rise of the rate of profit here, and its fall there, it brings 
about such a proportion of supply to demand that the average 
profit in the various spheres of production becomes the same, 
so that values are converted into prices of production. This 
equilibration is accomplished by capital in a more or less per- 
fect degree to the extent that capitalist development is ad- 



Market Prices and Market Values. 231 

vanced in a certain nation, in other words, to tlie extent that 
conditions in the respective countries are adapted to the capi- 
talist mode of production. As capitalist development pro- 
ceeds, it develops also its o"^vn peculiar conditions and subjects 
to its specific character and its immanent laws all the social 
requirements on which the process of production is based. 

The incessant equilibration of the continual differences is 
accomplished so much quicker, 1), the more movable capital 
is, the easier it can be shifted from one sphere and one place 
to another; 2) the quicker labor-power can be transferred 
from one sphere to another and from one local point of pro- 
duction to another. The first condition implies complete 
freedom of trade in the interior of society and the removal of 
all monopolies with the exception of those which naturally 
arise out of the capitalist mode of production. It implies, 
furthermore, the development of the credit-system, which con- 
centrates the inorganic mass of the disposable social capital 
instead of leaving it in the han.ds of individual capitalists. 
Finally it implies a subordination of the various spheres of 
production to the control of capitalists. This last implica- 
tion is of itself included in the assumption that it is a ques- 
tion of a transformation of values into prices of production in 
all capitalistically exploited spheres of production. But this 
equilibration meets great obstacles, whenever numerous and 
large spheres of production, which are not operated on a cap- 
italistic basis (such as farming by small farmers), are inter- 
polated between the capitalist spheres and interrelated with 
them. A great density of population is also a requirement. — 
The second condition implies the abolition of all laws which 
prevent the laborers from moving from one sphere of produc- 
tion to another and from one local center of production to an- 
other ; an indifference of the laborer to the nature of his labor ; 
the greatest possible reduction of labor in all spheres of pro- 
duction to simple labor ; the elimination of all craft prejudices 
among laborers ; and last, not least, a subjugation of the la- 
borer under the capitalist mode of production. More de- 
tailed statements concerning these points belong in a special 
analysis of competition. 



22,2 Capitalist Production. 

It follows from tlie foregoing that the indJAddual capitalist 
as well as tlie capitalists as a whole in each particular sphere 
of production are participants in the exploitation of the total 
working class by the total capital, and in the degree of that 
exploitation, not only out of general class sympathy, but also 
for direct economic reasons, because, assuming all other con- 
ditions, among them the value of the advanced constant cap- 
ital, to be given, the average rate of profit depends on the in- 
tensity of exploitation of the total labor by the total capital. 

The average profit coincides with the average surplus-value 
produced for each 100 of capital, and so far as the surplus- 
value is concerned, the foregoing statements apply as a matter 
of course. In the determination of the rate of profit, the 
value of the advanced capital becomes an additional element. 
In fact, the direct interest taken by the capitalist, or the capi- 
tal, of any individual sphere of production in the exploitation 
of the laborers directly employed by him, or it, is limited to 
the endeavor to make an extra gain, a profit exceeding the 
average, either by exceptional overwork, or by a reduction of 
wages below the average, or by an exceptional productivity of 
labor. Aside from this, a capitalist who would not employ 
any variable capital, and therefore no laborers (an exag- 
gerated assumption), would be as much interested in the ex- 
ploitation of the working class by capital, and would derive 
his profit quite as much from unpaid surplus-labor, as a capi- 
talist who would employ only variable capital (another exag- 
geration), and who would invest his entire capital in wages. 
The degree of exploitation of labor depends on the average 
intensity of labor, if the working day is given, and on the 
length of the working day, if the average intensity of exploi- 
tation is given. The degTee of exploitation of labor deter- 
mines the size of the rate of surplus-value, and therefore the 
size of the mass of surplus-value for a given total mass of 
variable capital, and consequently the magnitude of the profit. 
The individual capitalist, as distinguished from his sphere, 
has the same special interest in the exploitation of the laborers 
personally employed by him that the capital of a certain 



Market Prices and Market Values. 22,2, 

sphere, as distinguished from the total social capital, has in 
the exploitation of the laborers directly employed by it. 

On the other hand, every particular sphere of capital, and 
every individual capitalist, has the same interest in the pro- 
ductivity of the social labor employed by the total capital. 
For two things depend on this productivity: In the first 
l^lace, the mass of use-values by which the average profit is 
expressed; and this is doubly important, where this average 
profit serves as a fund for the accumulation of new capital and 
as a fund for revenue to be spent in enjoyment. In the sec- 
ond place, the amount of the value of the total capital invested 
(constant and variable), which, with a given amount of sur- 
plus-value, or profit, for the whole capitalist class, determines 
the rate of profit, or the profit on a certain percentage of cap- 
ital. The special productivity of labor in any particular 
sphere, or in any individual business of this sphere, interests 
only those capitalists who are directly engaged in it, since it 
enables that particular sphere, or that individual capitalist, to 
make an extra profit over that of tlie total capital. 

Here, then, we have the mathematically exact demonstra- 
tion, how it is that the capitalists form a veritable freemason 
society arrayed against the whole working class, however much 
they may treat each other as false brothers in the competition 
among themselves. 

The price of production includes the average profit. We 
call it price of production. It is, as a matter of fact, the 
same thing which Adam Smith calls natural price, Eicardo 
price of production, or cost of production, and the physiocrats 
prix necessaire, because it is in the long run a prerequisite of 
supply, of the reproduction of commodities in every individual 
sphere.^^ But none of them has revealed the difference be- 
tween price of production and value. We can well under- 
stand, then, why these same economists, who always resist a 
determination of the value of commodities by labor-time, by 
the quantity of labor contained in them, always speak of prices 
of production as centers, around which market-prices fluctu- 

33 Malthus. 



234 Capitalist Production. 

ate. They can afford to do that, because the price of produc- 
tion is an utterly external and, at first glance, meaningless 
form of the value of commodities, a form as seen in competi- 
tion and thus reflected in the mind of the vulgar capitalist, 
and consequently in that of the vulgar economists. 

Our analysis resulted in the discovery that the market-value 
(and everything said concerning it applies with the necessary 
modifications to the price of production) implies a surplus- 
profit for those who produce in any particular sphere of pro- 
duction under the most favorable conditions. With the ex- 
ception of crises, and of over-production in general, this ap- 
plies to all market-prices, no matter how much they may de- 
viate from market-values or market-prices of production. For 
the market-price signifies that the same price is paid for com- 
modities of the same kind, although they may have been pro- 
duced under very different individual conditions and may 
have considerably different cost-prices. (We do not speak at 
this point of any surplus-profits due to monopolies in the 
strict meaning of the term, whether they are artificial or 
natural.) 

A surplus-profit may also arise, when certain spheres of 
production are in a position to evade the conversion of the 
values of their commodities into prices of production, and 
thus a reduction of their profits to the average profit. We 
shall devote more attention to the further modifications of 
these two forms of surplus-profit in the part dealing with 
ground-rent. 



CHAPTER XL 

EFFECTS OF GENEHAL FLUCTUATIONS OF WAGES ON PEICES OF 

PRODUCTION. 

Let the average composition of social capital be 80 c -j- 20 v, 
with a profit of 20%-. The rate of surplus-value is then 
100%. A general increase of wages, all other things remain- 
ing the same, is a reduction of the rate of surplus-value. In 



Fluctuations of Wages and Prices. 235 

the case of the average capital, profit and surplus-value are 
identical. Let wages rise hj 25%. Then the same quantity 
of labor, which was formerly set in motion with 20, costs 25. 
Instead of 80 c + 20 v -{- 20 p, we have then for the value of 
one turn-over 80 c -J" 25 v -f- 15 p. The labor set in motion 
by the variable capital still produces a value of 40, the same 
as before. If v rises from 20 to 25, then the surplus p, or s. 
amounts only to 15. The profit of 15 on a capital of 105 is 
14|-%, and this would be the new average rate of profit. 
Since the price of production of the commodities produced by 
the average capital coincides Avith their value, the price of 
production of these commodities would remain unchanged. 
The raising of wages would have brought about a reduction of 
profits, but no change in the value and price of the commodi- 
ties. 

Formerly, so long as the average profit was 20%, the price 
of production of the commodities produced in one period of 
turn-over was equal to their cost-price plus a profit of 20% on 
this cost-price, in other words k -f- kp' = k + 3^. In this 
formula k is a variable magnitude, changing according to the 
value of the means of production which are incorporated in 
the commodities, and according to the amount of wear trans- 
ferred from the fixed capital to the product. ISTow the price 
of production would amount to k -|- — j^— . 

Now let us first select a capital, whose composition is lower 
than the original composition of the average social cap- 
ital of 80 c + 20 V (which has now been transformed into 
76^1 c + 23|^v), for instance a capital of 50 c -f- 50 v. In 
this case, the price of production of the annual product, as- 
suming for the sake of simplicity that the entire fixed capital 
passes through wear into the product and that the time of 
turn-over is the same as that in the first case, would have been 
50 c -|- 50 V -[- 20 p, or 120, before the raising of wages. A 
raising of wages by 25% means for the same quantity of labor 
a raising of the variable capital from 50 to 62^. If the an- 
nual product were sold at the former price of production of 
120, then we should have the formula 50 c + 62| v + ''^2 P5 
or a rate of profit of 6|%. But the new average rate of 



236 Capitalist Production. 

profit is 14 I" %, and since we assume all other circumstances 
to remain the same, this capital of 50 c -|- 62^ v will also have 
to make this profit. ]SFow, a capital of 112^ makes a round 
profit of 16Y2at a rate of profit of l-i|-%. Therefore the 
price of production of the commodities produced by this cap- 
ital is now 50c + 62^v + 16-j^p = 128-]^. In consequence 
of a raise in wages of 25%, the price of production of the 
same quantity of the same commodities has risen from 120 
to 128 yV; 01' more than 7%. 

Vice versa, let us select a sphere of production of a higher 
composition than the average capital, for instance a capital of 
92 c -f- 8 V. The original average profit in this case would 
still be 20, and if we assume once more that the entire fixed 
capital parses into the annual product, and that the time of 
turn-over is the same as in the first and second case, the price 
of production of the commodities is also 120. 

In consequence of the rise of wages by 25% the variable 
capital for the same quantity of labor rises from 8 to 10, the 
cost-price of the commodities from 100 to 102, while the aver- 
age rate of profit has fallen from 20% to 14f%. Now 
100:14f = 102 :14|- (approximately). The profit now 
falling to the share of 102 is 14 -f-- Therefore the total prod- 
uct sells at k + kp', or 102 + 14 f , or 116 f . The price of 
production has fallen from 120 to 116 -f^, or more than 3%. 

Consequently, if wages are raised by 25%, 

1) the price of production of the commodities of a capital 
of average composition is not changed; 

2) the price of production of the commodities of a capital 
of lower composition rises, but not in the same proportion in 
which the profit falls ; 

3) the price of production of the commodities of a capital 
of higher composition falls, but not as much as the profit. 

Since the price of production of the commodities of the 
average capital remains the same and equal to the value of" 
the product, it follows that the sum of the prices of produc- 
tion of the products of all capitals remain the same and equal 
to the sum of the values produced by the total social capital. 
The increase on one side is balanced by the decrease on the 



Fluctuations of Wages and Prices. 237 

other and the level of the average social capital maintained for 
the total social capital. 

Seeing that the price of production in the second illustra- 
tion rises, while it falls in the third, it is evident from these 
opposite effects brought about by a fall in the rate of surplus- 
value or by a general rise of wages that there is no prospect 
of any compensation in the price for the rise in wages, since 
the fall of the price of production in ISTo. Ill cannot very 
well compensate the capitalist for the fall in the profit, and 
since the rise of the price in ISTo. II does not prevent a fall in 
profit. On the contrary, in either case, whether the price 
rises or falls, the profit remains the same as that of the aver- 
age capital whose price remains unchanged. It is the same 
average profit, w^hich has fallen by 5^, or about 25%, in the 
case of II as well as III. It follows from this, that if the 
price did not rise in II and fall in III, II would have to sell 
below and III above the new, recently reduced, average profit. 
It is quite evident that a rise of wages must affect a capitalist 
who has invested one-tenth of his capital in wages differently 
from one who has invested one-fourth or one-half, according 
to whether 50, 25, or 10 per hundred of capital are advanced 
for wages. An increase in the price of production on one 
side, and a fall on the other, according to whether a capital 
is below or above the average social composition, is effected 
only by leveling to the new reduced average profit. 

ISTow, how would a general fall of wages, and a correspond- 
ing general rise of the rate of profit, and thus of tlie average 
profit, affect the prices of production of commodities pro- 
duced by capitals diverging in opposite directions from the 
average social composition ? We have but to reverse the fore- 
going statements, in order to find the answer (which Ricardo 
did not analyse). 

I. Average capital 80 c -1- 20 v ^ 100 ; rate of surplus- 
value 100% ; price of production = value of commodities =^ 
'80 c + 20 V + 20 p = 120 ; rate of profit 20%. Let wages 
fall by one-fourth. Then the same constant capital is set in 
motion by 15 v, instead of 20 v. We have then as the value 
of commodities 80 c -|- 15 v -}- 25 p = 120. The quantity 



238 Capitalist Production. 

of labor employed by v remains the same, only the newly 
created value is differently distributed between the capitalist 
and the laborers. The surplus-value increases from 20 to 25, 
and the rate of surplus-value from f^ to -f-f , in other words, 
from 100% to 166|%. The profit on 95 is now 25, so that 
the rate of profit per 100 is 26^. The composition of the 
capital in percentages is now 84y-9 4- 15y|-= 100. 

II. Lower composition. Original composition, as above, 
50 c -f- 50 V. By the fall of wages by one-fourth v is reduced 
to 37-|, and consequently the advanced total capital to 50 c -f- 
37^ V = 87^. Applying to this the new rate of profit of 
26-5^%, we get 100 : 26y%= 87| : 23^1-8-. The same mass of 
commodities which formerly cost 120, now costs 87^ + 23^ 
= 100|§-. A fall in prices of almost 10%. 

III. Higher composition. Original composition 92 c -j- 
8 V ^ 100. The fall in wages by one-fourth reduces 8 v to 
6 V, and tlie total capital to 98. Consequently 100 : 26^^ = 
98 : 25^|-. The price of production of the commodities, for- 
merly 100 + 20 =. 120, is now, after the fall in wages, 98 + 
25f|= 123i|. A rise by almost 4%. 

We see, then, that we have but to follow the preceding de- 
velopment in the opposite direction with the necessary, modifi- 
cations ; that a general fall of wages carries with it a general 
rise of surplus-value, of the rate of surplus-value, and, other 
circumstances remaining the same, also of the rate of profit, 
although expressed by different proportions ; a fall in the 
prices of production for the commodities produced by capi- 
tals of lower composition, a rise in the prices of production 
for commodities produced by capitals of higher composition. 
The result is just the reverse of that following a general rise 
of wages.^^ In both cases, whether of a rise or a fall, the as- 
sumption is that the working day remains the same, also the 
prices of the means of subsistence. Under these circum- 

^ It is very peculiar that Ricardo (who naturally proceeds differently from us, 
since he did not understand the compensation of values to prices of production) 
did not even think of this eventuality, but considered only the first case, that of 
a rise of wages and its influence on the prices of production of commodities. 
And the servile herd of imitators did not even make an attempt to advance so 
much as to apply the practical, or even tautological, test. 



Some After Remarks. 239 

stances, a fall in wages is possible only, if wages stood higher 
than the normal price of labor, or if they are depressed below 
this price. The way in which this condition is modified, if 
the rise or fall of wages is due to a change in value, and con- 
sequently in the price of production of commodities usually 
consumed by the laborer, will be to a certain extent analysed 
in the part dealing with ground-rent. At this place we make 
for once and all the foUomng statements : 

If a rise or fall in wages is due to a change in the value of 
the necessities of life, then a modification of the above findings 
can take place only to the extent that the commodities, whose 
variation of price raises or lowers the variable capital, pass 
also as constituent elements into the constant capital and 
consequently do not affect wages alone. But to the extent 
that they affect only wages, the above analysis contains all that 
needs to be said. 

In this entire chapter, it is assumed as a fact that there are 
in existence a general rate of profit, an average profit, and a 
conversion of values into prices of production. The question 
was merely in what manner a general rise or fall in wages 
affected the prices of production of commodities, which were 
assumed to exist. This is but a very secondary question com- 
pared with the important points analysed in this part. But 
it is the only relevant question treated by Ricardo, and we 
shall see that he treated even this but onesidedly and imper- 
fectly. 



CHAPTER XII. 

SOME' AFTER REMAEKS. 

I. Causes Implying a Variation of the Price of Production. 

The price of production of a commodity can vary only from 
two causes : 

1) The average rate of profit varies. This can be due only 
to a change in the average rate of surplus-value, or, if the 
average rate of surplus-value remains the same, by a change 



240 Capitalist Production. 

in the proportion of the sum of the appropriated surplus-values 
to the sum of the advanced total capital of society. 

Unless a variation of the rate of surplus-value is due to a 
depression of wages below normal, or their rise above normal, 
— and such movements must be considered as mere oscilla- 
tions — it can take place only for two reasons : Either the 
value of labor-power may have risen or fallen. The one even- 
tuality is as impossible as the other without a change in the 
productivity of that labor which produces means of subsist- 
ence, in other w^ords, without a change in the value of the 
commodities which are consumed by the laborer. Or, the pro- 
portion of the sum of appropriated surplus-values to the ad- 
vanced total capital of society varies. Since the variation in 
this case is not due to the rate of surplus-value, it must be due 
to the total capital, or rather to its constant part. The mass 
of this part, technically speaking, increases or decreases in 
proportion to the quantity of labor-power bought by the varia- 
ble capital, and the mass of its value increases or decreases 
with the increase or decrease of its own mass. Its mass of 
value, then, increases or decreases likewise in proportion to 
the mass of the value of the variable capital. If the same 
labor sets more constant capital in motion, labor has become 
more productive. If less, less productive. There has then 
been a change in the productivity of labor, and a change must 
have taken place in the value of certain commodities. 

The following rule, then, applies to both cases : If the 
price of j)roduction of a certain commodity changes in conse- 
quence of a change in the average rate of profit, its own value 
may have remained unchanged, but a change must have taken 
place in the value of other commodities. 

2) The average rate of profit remains unchanged. In that 
case the price of production of a commodity cannot change, 
unless its own value has changed. This may be due to the 
fact that more or less labor is required to produce this com- 
modity, either because the productivity of that labor varies, 
which produces this commodity in its final form, or of that 
labor which produces the commodities consumed in its produc- 
tion. Cotton yarn may vary in its price of production, either 



Some After Remarks. 241 

becanse cotton is produced at a lower figure, or because the 
labor of spinning has become more productive in consequence 
of improved machinery. 

As we have seen before, the price of production is equal to 
k + Pj equal to cost-price plus profit. This implies k -\- kp', 
and k, cost-price, stands here for a variable magnitude, which 
changes according to different spheres of production, but is 
everywhere equal to the value of the constant and variable 
capital consumed in the production of commodities, while p'' 
stands for the percentage of the average rate of profit. If 
k = 200, and p' = 20%, the price of production k + kp' is 
equal to 200 + 200^^^ = 200 + 40 = 240. It is evident 
that this price of production may remain the same, although 
the value of the commodities may change. 

All changes in the price of production of commodities re- 
duce themselves in the last analysis to changes in value. But 
not every change in the value of commodities needs to find 
expression in a change of the price of production. For this 
price is not determined merely by the value of any particular 
commodity, but by the aggregate value of all commodities. 
A change in commodity A may eventually be balanced by an 
opposite change of commodity B, so that the general pro- 
portion remains the same. 



II. Price of Production of Commodities of Average Com- 
position. 

We have seen that a deviation of the prices of production 
from the values may be brought about by the following means : 

1) By adding to the cost-price of a commodity, not the 
surplus-value contained in it, but the average profit. 

2) By transferring a price of production, which thus dif- 
fers from the value of some particular commodity, to the cost- 
price of some other commodity which consumes the first com- 
modity as one of its elements', so that the cost-price of a cer- 
tain commodity may already contain a deviation from the 
value of the means of production consumed by it, quite aside 
from the deviation, which it may still experience on its own 



242 Capitalist Production. 

account throiigli a difference between the average profit and 
the surplus-value. 

It is therefore possible that the cost-price may differ from 
the sum of the values of those elements which make up this 
portion of the price of production, even in the case of com- 
modities produced by capitals of average composition. Take 
it that the average composition is 80 c -|- 20 v. ISTow it is 
possible that in the actual capitals of this composition 80 c 
may be greater or smaller than the value of c, the constant 
capital, because this c may be made up of commodities whose 
price of production differs from their value. In the same 
way 20 v might differ from its value, if the laborer consumes 
commodities whose price of production differs from their 
value, in which case the laborer would work a longer or 
shorter time for their reproduction, and would thus perform 
more or less necessary labor, then would be required, if the 
price of production of the necessities of life coincided with 
their value. 

However, this possibility does not alter the correctness of 
the rules laid down for commodities of average composition. 
The quantity of profit falling to the share of these commodi- 
ties is equal to the quantity of surplus-value contained in 
them. For instance, the most important point in a capital 
of the above composition, 80 c +20 v, so far as the deter- 
mination of surplus-value is concerned, is not whether these 
figures are expressions of actual values, but wdiether this rep- 
resents their actual proportion to one another, in other words, 
whether v is one-fifth, and c four-fifths, of the total capital. 
Whenever this is actually the case, as was assumed above, 
then the surplus-value produced by v is equal to the average 
profit. On the other hand, seeing that this surplus-value is 
equal to the average profit, the price of production, or cost- 
price plus profit, k -f- p, is equal to k + s, that is, practically 
equal to the value of these commodities. This implies that a 
rise or a fall in wages would not change the price of pro- 
duction, k + p, any more than it would change the value of 
these commodities. It would merely effect a corresponding 
opposite movement on the side of profit, a fall or a rise. For 



Some After Remarks. 243 

if a rise or a fall of wages were to bring about a change in the 
price of commodities of average composition, then the rate 
of profit in these spheres of average composition would rise 
above, or fall below, the level it holds in other spheres. The 
sphere of average composition maintains the same level of 
profit as the other spheres only so long as the price remains 
unchanged. The practical result in the case of this sphere of 
average composition is the same as though its products were 
sold at their value. For if commodities are sold at their 
actual values, it is evident that, other circumstances remain- 
ing equal, a rise or a fall in wages will cause a corresponding 
fall or rise in profits, but no change in the value of commod- 
ities, and that under all circumstances a rise or a fall in 
wages can never affect the value of commodities, but only the 
magnitude of the surplus-value. 



III. Fluctuations for which the Capitalist malces Allowance. 

It has been said that competition levels the rates of profit 
of the different spheres of production into an average rate 
of profit and thereby transforms the values of the products of 
these different spheres into prices of production. This is ac- 
complished by continually transferring capital from one 
sphere to another, in which the profit happens to stand above 
the average for the moment. The fluctuations of profit due 
to the cycle of fat and lean years, following each other in any 
given line of industry during given periods, must be taken 
into consideration, of course. These incessant emigrations 
and immigrations of capital, which take place between the 
different spheres of production, create rising and falling move- 
ments of the rate of profit. These movements balance one 
another more or less and thereby create a tendency to reduce 
the rate of profit everywhere to the same common and univer- 
sal level. 

This movement of capitals is caused primarily by the stand 
of the market-prices, which lift profits above the level of the 
universal average in one place and depress them below it in 
another. We leave out of consideration, for the present, 



244 Capitalist Production. 

merchant's capital. We know from the sudden paroxysms of 
speculation in certain favorite articles that this merchants' 
capital can draw masses of capital from a certain line of busi- 
ness with extraordinary rapidity and throw tliem with equal 
rapidity into another. But we have nothing to do with mer- 
chants' capital at this place. So far as the sphere of actual 
production is concerned, that is, industries, agriculture, min- 
ing, etc., the transfer of capital from one sphere to another 
offers considerable difficulty, particularly on account of the 
existing fixed capital. Moreover, experience demonstrates 
that, if a certain line of industry, for instance the cotton in- 
dustry, yields extraordinary profits at one period, it suffers 
losses, or makes very little profit, at some other period, so 
that the average profit within a certain cycle of years is pretty 
much the same as in other lines. And capital soon learns to 
take this experience into account. 

What competition does not show is the way in which value 
is determined and the movement of production dominated by 
this determination. It does not show the values that stand 
behind the prices of production and determine them in the 
last instance. Competition does show, on the other hand, the 
following things: 1) The average profits independent of 
the organic composition of capital in the different spheres of 
production, and therefore also independent of the mass of liv- 
ing labor appropriated by any given capital in any particular 
sphere of exploitation. 2) A rise and fall of prices of pro- 
duction as a result of changes in the level of wages, a phe- 
nomenon which flatly contradicts at first sight the law of 
value of commodities. 3) The fluctuations of market-prices, 
which reduce the average market-price of commodities in a 
given period of time, not to the market-value, but to a marJcet- 
price of production differing considerably from this market- 
value. All these phenomena seem to contradict the deter- 
mination of value by labor-time as much as the fact that 
surplus-value consists of unpaid surplus-labor. Everything 
appears upside down in competition. The existing conforma- 
tion of economic conditions, as seen in reality on the surface 
of things, and consequently in the conceptions which the 



Some After Remarks. 245 

leading human agents of these conditions form in trying to 
understand them, are not only different from the internal and 
disguised essence of these conditions, and from the concep- 
tions corresponding to this essence, but actually opposed to 
them, or their reverse. 

Turthermore, as soon as capitalist production has reached 
a certain degTee of development, the reduction of the different 
rates of profit of the individual spheres to the level of the 
average rate of profit no longer proceeds solely by virtue of 
the play of attraction and repulsion, by which the market- 
prices attract or repel capital. After the average prices, and 
the market-prices corresponding to them, have become stable 
for a time, the capitalists become conscious of the fact that 
this leveling process balances definite differences. And then 
they allow for these differences in their mutual calculations. 
The differences exist in the consciousness of the capitalists 
and are taken into consideration as fluctuations for which al- 
lowance must be made. 

At the bottom of all conceptions lies that of the average 
profit, to-wit, that capitals of the same magnitude must yield 
the same profits in the same time. This, again, is based on 
the assumption that the capital of each sphere of production 
shares in the total profit squeezed out of the laborers by the to- 
tal social capital in proportion to its magnitude ; or, that every 
individual capital should be regarded merely as a part of the 
total social capital, and every capitalist as a shareholder in 
the total social enterprise, each sharing in the total profit in 
proportion to the magnitude of his share of capital. 

These conceptions serve as a basis for the calculations of 
the capitalist, for instance the assumption that a capital which 
is turned over more slowly than another, because its commodi- 
ties require a longer time for their production, or because 
they must be sold in more remote markets, should neverthe- 
less charge the profit it loses in this way and reimburse itself 
by putting up the price. Another idea is that capitals in- 
vested in lines which are exposed to considerable danger, for 
instance in shipping, should be compensated by a raise in 
prices. As soon as capitalist production, and the insurance 



246 Capitalist Production. 

business, are developed, the danger is equalised for all spheres 
of production (see Corbett) ; but the capitals invested in more 
than ordinarily dangerous enterprises have to pay higher insur- 
ance rates and recover them in the prices of their commodi- 
ties. All this amounts in practice to saying that every cir- 
cumstance (and all of them are considered equally necessary 
within certain limits), which renders one line of production 
profitable, and another less, are calculated as legitimate 
grounds for compensation, without requiring the ever renewed 
action of competition to demonstrate the justification of such 
claims. The capitalist simply forgets, or rather he does not 
see, because competition does not show it to him, that all these 
claims for compensation mutually advanced by the capitalists 
in the calculation of the prices of commodities of different 
lines of production repeat in another way the idea that 
all capitalists are entitled, in proportion to the magni- 
tude of their respective capitals, to equal shares of the com- 
mon loot, the total surplus-value. They are rather under the 
impression, seeing that the profit pocketed by them differs 
from the surplus-value appropriated by them, that those 
grounds for compensation do not equalise their participation 
in the total surplus-value, but that they rather create the profit 
itself, which is supposed to originate in an addition to the 
price of their commodities, for which they advance different 
excuses. 

In other respects the statements made in chapter VII con- 
cerning the assumptions of the capitalists as to the source of 
surplus-value apply also in this instance. The present case 
differs a little from those in chapter VII, but only to the ex- 
tent that a saving in cost-price depends on individual ability, 
attention to business, etc., assuming the market-price of com- 
modities and the degree of exploitation of labor to be given. 



PAET III. 

THE LAW OF THE EALLING TENDENCY OF THE 
EATE OF PROFIT. 



CHAPTEE XIII. 

THE THEORY OP THE LAW. 

With a given wage and working day, a certain variable capi- 
tal, for instance of 100, represents a certain number of em- 
ployed laborers. It is tbe index of this number. For in- 
stance, let 100 p.st. be tbe wages of 100 laborers for one week. 
If these laborers perform the same amount of necessary as of 
surplus-labor, in other words, if they work daily as much time 
for themselves as they do for the capitalist, or, in still other 
words, if they require as much time for the reproduction of 
their wages as they do for the production of surplus-value 
for the capitalist, then they would produce a total value of 
200 p.st., and the surplus-value would amount to 100 p.st. 
The rate of surplus-value, -f-, would be 100%. But Ave have 
seen that this rate of surplus-value would express itself in 
considerably different rates of profit, according to the differ- 
ent volumes of constant capitals c and consequently of total 
capitals C. For the rate of profit is calculated by the for- 
mula -^ . 

Take it that the rate of surplus-value is 100%. Now, if 

c = 50, and v = 100, then p' =r|||, or 66^%. 

c = 100, and v = 100, then p' = m, or ^50 %. 

c = 200, and v = 100, then p' =|oo, or 33^%. 

c = 300, and v = 100, then p' =^, or 25 %. 

c=.400, and v = 100, then p'=.|-^, or 20 %. 

247 



248 Capitalist Produclion. 

In this way, the same rate of surplus-valuej with the same 
degree of labor exploitation, would express itself in a falling 
rate of profit, because the material growth of the constant capi- 
tal, and consequently of the total capital, implies their growth 
in value, although not in the same proportion. 

If it is furthermore assumed that this gradual change in 
the composition of capital is not confined to some individual 
spheres of production, but occurs more or less in all, or at 
least in the most important ones, so that they imply changes in 
the organic average composition of the total capital of a cer- 
tain society, then the gradual and relative growth of the con- 
stant over the variable capital must necessarily lead to a grad- 
ual fall of the average rate of profit, so long as the rate of 
surplus-value, or the intensity of exploitation of labor by capi- 
tal, remain the same. ISTow we have seen that it is one of the 
laws of capitalist production that its development carries with 
it a relative decrease of variable as compared with constant 
capital, and consequently as compared to the total capital, 
which it sets in motion. This is only another way of saying 
that the same number of laborers, the same quantity of labor- 
power set in motion by a variable capital of a given value, con- 
sume in pro'duction an ever increasing quantity of means of 
production, such as machinery and all sorts of fixed capital, 
raw and auxiliary materials, and consequently a constant capi- 
tal of ever increasing value and volume, during the same pe- 
riod of time, owing to the peculiar methods of production 
developing within the capitalist system. This progressive rel- 
ative decrease of the variable capital as compared to the con- 
stant, and consequently to the total, capital is identical with 
the progressive higher organic composition of the average so- 
cial cajDital. It is, in another way, but an expression of the 
progressive development of the productive powers of society, 
which is manifested hj the fact that the same number of la- 
borers, in the same time, convert an ever growing quantity of 
raw and auxiliary materials into products, thanks to the grow- 
ing application of machinery and fixed capital in general, so 
that less labor is needed for the production of the same, or of 
more, commodities. This growing value and volume of con- 



The Theory of the Law. 249 

stant capital corresponds to a progressive cheapening of prod- 
ucts, although the increase in the value of the constant capital 
indicates but imperfectly the growth in the actual mass of use- 
values represented by the material of the constant capital. 
Every individual product, taken by itself, contains a smaller 
quantity of labor than the same product did on a lower scale 
of production, in which the capital invested in wages occupies 
a far greater space compared to the capital invested in means 
of production. The hypothetical series placed at the begin- 
ning of this chapter expresses, therefore, the actual tendency 
of capitalist production. This mode of production produces 
a progressive decrease of the variable capital as compared to 
the constant capital, and consequently a continuously rising 
organic composition of the total capital. The immediate re- 
sult of this is that the rate of surplus-value, at the same de- 
gree of labor-exploitation, expresses itself in a continually fall- 
ing average rate of profit. (We shall see later why this fall 
does not manifest itself in an absolute form, but rather as a 
tendency toward a progressive fall.) This progressive tend- 
ency of the average rate of profit to fall is, therefore, but a 
peculiar expression of capitalist production for the fact that 
the social productivity of labor is progressively increasing. 
This is not saying that the rate of profit may not fall tem- 
porarily for other reasons. But it demonstrates at least that 
it is the nature of the capitalist mode of production, and a 
logical necessity of its development, to give expression to the 
average rate of surplus-value by a falling rate of average 
profit. Since the mass of the employed living labor is con- 
tinually on the decline compared to the mass of materialised 
labor incorporated in productively consumed means of pro- 
duction, it follows that that portion of living labor, which is 
unpaid and represents surplus-value, must also be continually 
on the decrease compared to the volume and value of the in- 
vested total capital. Seeing that the proportion of the mass of 
surplus-value to the value of the invested total capital forms 
the rate of profit, this rate must fall continuously. 

Simple as this law appears from the foregoing statements, 
all of political economy has so far tried in vain to discover it, 



250 Capitalist Production. 

as we shall see later on. The economists saw the problem 
and cudgeled their brains in tortuous attempts to interpret it. 
Since this law is of great importance for capitalist produc- 
tion, it may be said to be that mystery whose solution has been 
the goal of the entire political economy since Adam Smith. 
The difference between the various schools since Adam Smith 
consists in their different attempts to solve this riddle. If 
we consider, on the other hand, that political economy up to 
the present has been tinkering with the distinction between 
constant and variable capital without ever defining it accu- 
rately; that it never separated surplus-value from profit, and 
never even considered profit in its purely theoretical form, 
that is, separated from its different subdivisions, such as in- 
dustrial profit, commercial profit, interest, ground rent; that 
it never thoroughly analyzed the differences in the organic 
composition of capital, and for this reason never thought of 
analyzing the formation of an average rate of profit; if we 
consider all this, we no longer wonder at its failure to solve 
the riddle. 

We intentionally analyze first this law, before we pass on 
to a consideration of the different independent categories into 
which profit is subdivided. The fact that this analysis is 
made independently of the subdivisions of profit, which fall 
to the share of different categories of persons, shows in itself 
that this law, in its general workings, is independent of those 
subdivisions and of the mutual relations of the resulting cate- 
gories of profit. The profit to which we are here referring is 
but another name for surplus-value itself, which is merely ob- 
served in its relation to the total capital, instead of its rela- 
tion to the variable capital from which it arises. The fall 
in the rate of profit therefore expresses the falling relation of 
surplus-value itself to the total capital, and is for this reason 
independent of any division of this profit among various par- 
ticipants. 

We have seen that a certain stage of capitalist development, 
in which the organic composition of capital, c : v shows the pro- 
portion of 50 : 100, expresses a. rate of surplus-value of 100% 
by a rate of profit of 66|%, and that a higher stage, in 



The Theory of the Law. 2^1 

which c : v shows the proportion 400 : 100, expresses the same 
rate of surpliis-valiie by a rate of profit of only 20%. What 
is true of different successive stages in the same country, is 
also true of different contemporaneous stages of development 
in different countries. In an undeveloped country, in which 
the first-named composition of capital is the rule, the average 
rate of profit would be 66f %, while in a country with the 
other, higher, stage of development, the average rate of profit 
would be 20%. 

The difference between two national rates of profit might 
be eliminated, or even reversed, if labor were less productive 
in the less developed country, so that a larger quantity of la- 
bor would be incorporated in a smaller quantity of the same 
commodities, a larger exchange-value represented by a smaller 
use-value, so that the laborer would consume a larger portion 
of his time in the reproduction of his own means of sub- 
sistence, or of their value, and have less time to spare for the 
production of surplus-value, and consequently would perform 
less surplus-labor, so that the rate of surplus-value would be 
lower. For instance, if the laborer of the less developed 
country were to work two-thirds of the working day for 
himself, and one-third for the capitalist, then, referring to 
the above illustration, the same labor-power would be paid 
with 133-J and would furnish a surplus of only 66f. A con- 
stant capital of 50 would correspond to a variable capital of 
133^. The rate of surplus-value would then amount to 
133-1- . 6g| _ 50^^^ and the rate of profit to 183^ : 66| = 
about 36|%. 

Since we have not analysed the different subdivisions of 
profit, so that they do not exist for the present so far as we 
are here concerned, we make the following preliminary re- 
marks merely in order to prevent misunderstanding: It 
would be a mistake to measure the level of the national rate 
of profit by, say, the level of the national rate of interest, 
when comparing countries in different stages of development, 
especially when comparing countries with a developed capi- 
talist production to countries, in which labor has not yet been 
fully subjected to capital, although the laborer may already 



252 Vapitalist Production. 

be exploited by the capitalist, as happens, for instance, in 
India, "vvhere the ryot manages his farm as an independent 
producer, whose production, strictly so called, is not yet under 
the complete sway of capital, although the usurer may not 
only rob him of his entire surplus-labor by means of interest, 
but also curtail his wages, to use a capitalist term. For the 
interest of such stages comprises all of the profit, and more 
than the profit, instead of merely expressing an aliquot part 
of the produced surplus-value, or profit, as it does in countries 
with a developed capitalist production. On the other hand, 
the rate of interest in capitalist countries is overwhelmingly 
determined by conditions (loans granted by usurers to owners 
of large estates who draw ground-rent) which have nothing to 
do with profit, but which merely indicate to what extent usury 
appropriates ground-rent. 

In countries with capitalist production in different stages 
of development, and consequently with capitals of different 
organic composition, a country with a short normal working 
day may have a higher rate of surplus-value (the one factor 
which determines the rate of profit) than a country with a 
long normal working day. In the first place, if the English 
working day of 10 hours, on account of its higher intensity, is 
equal to an Austrian working day of 14 hours, then dividing 
the working day equally in both instances, 5 hours of English 
surplus-labor may represent a greater value on the world- 
market than 7 hours of Austrian surplus-labor. In the sec- 
ond place, a larger portion of the English working day may 
represent surplus-labor than of the Austrian working day. 

The law of the falling tendency of the rate of profit, which 
is the expression of the same, or even of a higher, rate of 
surplus-value, says in so many words : If you take any quan- 
tity of the average social capital, say a capital of 100, you 
will find that an ever larger portion of it is invested in means 
of production, and an ever smaller portion in living labor. 
Since, then, the aggregate mass of the living labor operating 
the means of production decreases in comparison to the value 
of these means of production, it follows that the unpaid labor, 
and that portion of value in which it is expressed, must de- 



The Theory of the Law. 253 

dine as compared to the value of the advanced total capital. 
Or, an ever smaller aliquot part of the invested total capital 
is converted into living labor, and this capital absorbs in 
proportion to its magnitude less and less surplus-labor, al- 
though the proportion of the unpaid part of the employed, 
labor maj simultaneously grow as compared with the paid 
part. The relative decrease of the variable, and the relative 
increase of the constant, capital, while both parts may grow 
absolutely in magnitude, is but another expression for the in- 
creased productivity of labor. 

Let a capital of 100 consist of 80 c -|- 20 v, and let the 20 v 
stand for 20 laborers. Let the rate of surplus-value be 
100%, that is to say, the laborers work one-half of the day 
for themselves and the other half for the capitalist. Now 
take a less developed country, in which a capital of 100 is 
composed of 20 c -J- 80 v, and let these 80 v stand for 80 la- 
borers. But let these laborer-s work two-thirds of the day for 
themselveSj and only one-third for the capitalists. Assum- 
ing all other things to be equal, the laborers in the first case 
will produce a value of 40, while those in the second case will 
produce a value of 120. The first capital produces 80 c -|- 
20 V + 20 s = 120 ; rate of profit 20%. The second capital 
produces 20 c + 80 v -f 40 s = 140 ; rate of profit 40%. In 
other words, the rate of profit in the second case is double 
that of the first case, and yet the rate of surplus-value in the 
first case is 100%, while it is only 50% in the second case. 
But a capital of the same magnitude appropriates in the first 
case the surplus-labor of only 20 laborers, while it appropri- 
ates that of 80 laborers in the second case. 

The law of the falling tendency of the rate of profit, or of 
the relative decline of the appropriated surplus-labor com- 
pared to the mass of materialised labor set in motion 'by liv- 
ing labor does not argue in any way against the fact that the 
absolute mass of the employed and exploited labor set in 
motion by the social capital, and consequently the absolute 
mass of the surplus-labor appropriated by it, may grow. ISTor 
does it argue against the fact that the capitals controlled by 
individual capitalists may dispose of a growing mass of labor 



254 Capitalist Production. 

and surplus-labor, even thongli the number of the laborers 
emj)loyed bj them may not grow. 

Take for illustration's sake a certain population of working 
people, for instance, two millions. Assume, furthermore, 
that the length and intensity of the average working day, and 
the level of wages, and thereby the proportion between neces- 
sary and surplus-labor, are given. In that case the aggregate 
labor of these two millions, and their surplus-labor expressed 
in surplus-value, represent always the same magnitude of 
values. But with the growth of the mass of the constant 
(fixed and circulating) capital, which this labor manipulates, 
the proportion of this produced quantity of values declines as 
compared to the value of this total capital. And the value of 
this capital grows with its mass, although not in the same 
proportion. This proportion, and consequently the rate of 
profit, falls in spite of the fact that the same mass of living 
labor is controlled as before, and the same amount of surplus- 
labor absorbed by the capital. This proportion changes, not 
because the mass of living labor decreases, but. because the 
mass of the materialised labor set in motion by living labor in- 
creases. It is a relative decrease, not an absolute one, and 
has really nothing to do with the absolute magnitude of the 
labor and surplus-labor set in motion. The fall of the rate 
of profit is not due to an absolute, but only to a relative de- 
crease of the variable part of the total capital, that is, its de- 
crease as compared Avith tlie constant part. 

The same thing which applies to any given mass of labor 
and surplus-labor, applies also to a growing number of la- 
borers, and thus under the above assumptions, to any growing 
mass of the controlled labor in general and to its unpaid part, 
the surplus-labor, in particular. If the laboring population 
increases from two million to three million, if, furthermore, 
the variable capital invested in wages also rises to three mil- 
lion from its former amount of two million, while the con- 
stant capital rises from four million to fifteen million, then 
the mass of surplus-labor, and of surplus-value, under the 
above assumption of a constant working day and a constant rate 
of surplus-value, rises by 50%, that is, from two million to 



The Theory of the Lazv. 255 

three million. ISTevertheless, in spite of this growth in the 
ahsolute mass of surplus-labor and surplus-value by 50%, the 
proportion of the variable to the constant capital would fall 
from 2 : 4 to 3 : 15, and the proportion of the surplus-value to 
the total capital, expressed in millions, would be 

I. 4c + 2v + 2s; C=. 6, p' = 33^%. 
11. 15e + 3v + 3s; C = 18, p' = 16|%. 

While the mass of surplus-value has increased by one-half, 
the rate of profit has fallen by one-half. However, the profit 
is only the surplus-value calculated on the total social capital, 
so that its absolute magnitude, socially considered, is the same 
as the absolute magnitude of the surplus-value. In this case, 
the absolute magnitude of the profit would have grown by 
50%, in spite of its enormous relative decrease compared to 
the advanced total capital, or in spite of the enormous fall of 
the average rate of profit. We see, then, that in spite of the 
progressive fall of the rate of profit, there may be an absolute 
increase of the number of laborers employed by capital, an 
absolute increase of the labor set in motion by it, an absolute 
increase of the mass of surplus-labor absorbed, a resulting ab- 
solute increase of the produced surplus-value, and conse- 
quently an absolute increase in the mass of the produced 
profit. And this increase may be progressive. And it may 
not only be so. On the basis of capitalist production, it must 
be so, aside from temporary fluctuations. 

The capitalist process of production is essentially a process 
of accumulation. We have shown that the mass of values, 
which must be simply reproduced and maintained, increases 
progressively with the development of capitalist production to 
the extent that the productivity of labor grows, even if the 
employed labor-power should remain constant. But the de- 
velopment of social productivity carries with it a still greater 
increase of the produced use-values, of which the means of 
production form a part. And the additional labor, whose ap- 
propriation reconverts this additional value into capital, does 
not depend on the value, but on the mass of these means of 
production (including the means of subsistence), because the 
laborer in the productive process is not operating w4th the 



256 Capitalist Production. 

exchange-value, but with the use-value of the means of pro- 
duction. Accumulation itself, however, and the concentra- 
tion of capital that goes with it, is a material means of in- 
creasing the productive power, l^ow, this growth of the 
means of production includes the increase of the laboring 
population, the creation of a laboring population which 
corresponds to the surplus-capital or even exceeds its 
general requirements, leading to an overpopulation of 
working people. A momentary excess of the surplus-cap- 
ital over the laboring population controlled by it would have 
a twofold effect. It would, on the one hand, mitigate the 
conditions, which decimate the offspring of the laboring class 
and would facilitate marriages among them, by raising wages. 
This would tend to increase the laboring population. On the 
other hand, it would employ the methods by which relative 
surplus-value is created (introduction and improvement of 
machinery) and thereby create still more rapidly an artificial 
relative overpopulation, which in its turn would be a hothouse 
for the actual propagation of its numbers, since under capi- 
talist production poverty propagates its kind. The nature of 
the capitalist process of accumulation, which process is but 
an element in the capitalist process of production, implies as 
a matter of course that the increased mass of means of pro- 
duction, which is to be converted into capital, must always 
find on hand a corresponding increase, or even an excess, of 
laboring people for exploitation. The progress of the process 
of production and accumulation must, therefore, be accom- 
panied by a growth of the mass of available and appropriated 
surplus-labor, and consequently by a growth of the absolute 
mass of profit appropriated by the social capital. But the 
same laws of production and accumulation increase the vol- 
ume and value of the constant capital in a more rapid progres- 
sion than those of the variable capital invested in living labor. 
The same laws, then, produce for the social capital an increase 
in the absolute mass of profit and a falling rate of profit. 

We leave out of consideration the fact that the same amount 
of values represents a progressively increasing mass of use- 
values and enjoyments to the extent that the capitalist process 



The Theory of the Law. 257 

of production carries with it a development of the productive 
power of social labor, a multiplication of the lines of pro- 
duction, and an increase of products. 

The development of capitalist production and accumula- 
tion lifts the processes of labor to a higher scale and gives 
them greater dimensions, which implj larger investments of 
capital for each individual establishment. A growing con- 
centration of capitals (accompanied by a growing number of 
capitalists, though not to the same extent) is therefore one of 
the material requirements of capitalist production as well as 
one of the results produced by it. Hand in hand with it, and 
mutually interacting, goes a progressive expropriation of the 
more or less direct producers. It is, then, a matter of course 
for the capitalists that they should control increasing armies 
of laborers (no matter how much the variable capital may 
relatively decrease in comparison to the constant capital), 
and that the mass of surplus-value, and of profit, appropriated 
by them, should grow simultaneously with the fall of the rate 
of profit, and in spite of it. The same causes which concen- 
trate masses of laborers under the control of capitalists, are 
precisely those which also swell the mass of fixed capital, 
auxiliary and raw materials in a growing proportion as com- 
pared to the mass of the employed living labor. 

It requires but a passing notice at this point, that, given 
a certain laboring population, the mass of surplus-value, and 
therefore the absolute mass of profit, must grow if the rate of 
surplus-value increases by a prolongation or intensification of 
the working day, or by a lowering of the value of wages 
through a development of the productive power of labor, and 
must do so in spite of the relative decrease of the variable 
capital compared to the constant. 

The same development of the productive power of social 
labor, the same laws, which express themselves in a relative 
fall of the variable as compared to the total capital and in 
a correspondingly hastened accumulation, while this accumu- 
lation in its turn becomes the starting point of a further de- 
velopment of the productive power and of a further relative 
fall of the variable capital, this same development manifests 



25B Capitalist Production. 

itself, aside from temporary ilnctiTations, by a growing in- 
crease of the employed total labor-power, a growing increase 
of the absolute mass of surplus-value, and consequently of 
profits. 

J^ow, in wbat form must this two-faced law with the same 
causes for a decrease of the rate of profits and a simultaneous 
increase of the absolute mass of profits show itself? A law 
based on the fact that under certain conditions the appropri- 
ated mass of surplus-labor, and consequently of surplus-value, 
increases, and that, so far as the total capital is concerned, or 
the individual capital as an aliquot part of the total capital, 
profit and surplus-value are identical magnitudes ? 

Take that aliquot part of capital which is the basis of our 
calculation of the rate of profit, for instance 100. These 100 
illustrate the average composition of the total capital, say 
80 c + 20 V. We have seen in the second part of this vol- 
ume, that the average rate of profit is determined, not by the 
particular composition of individual capital, but by the aver- 
age composition of social capital. If the variable capital de- 
creases as compared to the constant, or to the total capital, 
then the rate of profit, or the relative magnitude of surplus- 
value calculated on the total capital, falls even though the 
intensity of exploitation were to remain the same, or even to 
increase. But it is not this relative magnitude alone which 
falls. The magnitude of the surplus-value or profit absorbed 
by the total capital of 100 also falls absolutely. At a rate 
of surplus-value of 100%, a capital of 60 -|~ 40 produces a 
mass of surplus-value and profit amounting to 40 ; a capital 
of 70 c -]- 30 V a mass of profit of 30 ; a capital of 80 c -|- 20 v 
produces only 20 of profit. This fall refers to the mass of 
surplus-value, and thus of profit, and is due to the fact that 
the total capital of 100, with the same intensity of labor ex- 
ploitation, employs less living labor, sets in motion less labor- 
power, and therefore produces less surplus-value. Taking 
any aliquot part of the social capital, that is, of capital of 
average composition, as a standard by which to measure sur- 
plus-value — and this is done in all calculations of profit — 
a relative fall of surplus-value is identical with its absolute 



The Theory of the Lazv. 1259 

fall. The rate of profit sinks in the above cases from 40^ 
to 30% and 20%, because the mass of surplus-value, and of 
profit, produced by the same capital falls absolutely from 40 
to 30 and 20. Since the magnitude of the value of capital, 
by which the surplus-value is measured, is given as 100, a 
fall in the proportion of surplus-value to this given magnitude 
can be only another expression for the fact that surplus-value 
and profit decrease absolutely. This is, of course, a tautol- 
ogy. But we have demonstrated that the nature of the cap- 
italist process of production brings about this decrease. 

On the other hand, the same causes which bring about an 
absolute decrease of surplus-value and profit on a given cap- 
ital, and consequently in the percentage of the rate of profit, 
produce an increase of the absolute mass of surplus-value and 
profit appropriated by the total capital (that is, by the capi- 
talists as a whole). How can this be explained, and what is 
the only way in which this can be explained, or what are the 
conditions on which this apparent contradiction is based ? 

While any aliquot part, any 100 of the social capital, any 
100 of average social composition, is a given magnitude, for 
which a fall in the rate of profit implies a fall in the absolute 
magnitude of profit, just because the capital which serves 
as a standard of measurement is a constant magnitude, the 
magnitude of the social capital, on the other hand, as well as 
that of the capital in the hands of individual capitalists, is 
variable, and in keeping with our assumptions it must vary in- 
versely to the decrease of its variable portion. 

In our former illustration, when the percentage of composi- 
tion w^as 60 c -j- 40 v, the corresponding surplus-value and 
profit was 40, and the rate of profit 40%. Take it that the 
total capital in this stage of composition was one million. In 
that case the total surplus-value, and total profit, amounted to 
400,000. jSTow, if the composition changes later to 80 c -|- 
20 V, while the degree of labor exploitation remains the same, 
then the surplus-value and profit for each 100 is 20. But as 
we have demonstrated that the absolute mass of surplus-value 
and profit increases in spite of the fall of the rate of profit, 
in spite of the decrease in the production of surplus-value by 



26o Capitalist Production. 

a capital of 100, that it grows, say, from 400,000 to 440,000, 
there is no other way in which this could be brought about 
than by a growth of the total capital to 2,200,000 to the ex- 
tent that this new composition developed. The mass of the 
total capital set in motion has risen by 220%, while the rate 
of profit has fallen by 50%. If the total capital had only 
been doubled, it could have produced no more surplus-value 
and profit with a rate of profit of 20% than the old capital 
of 1,000,000 at a rate of 40%. If it had grown to less than 
twice its old size, it would have produced less surplus-value 
or profit than the old capital of 1,000,000, which, with its 
former composition, would have had to grow from 1,000,000 
to no more than 1,100,000, in order to raise its surplus-value 
from 400,000 to 440,000. 

We meet here once more the previously analysed law, that 
the relative decrease of the variable capital, or the develop- 
ment of the productive power of labor, requires an increasing 
mass of total capital for the purpose of setting in motion the 
same quantity of labor-power and absorbing the same quan- 
tity of surplus-labor. Consequently the possibility of a rela- 
tive surplus of laboring people develops to the extent that cap- 
italist production advances, not because the productive power 
of social labor decreases, but because it increases. Relative 
overpopulation does not arise out of an absolute disproportion 
between labor and means of subsistence, or of means for the 
production of these means of existence, but out of a dispro- 
portion due to the capitalist exploitation of labor, a dispro- 
portion between the growing increase of capital and its rela- 
tively decreasing demand for an increase of population. 

A fall in the rate of profit by 50% means its fall by one- 
half. If the mass of profit is to remain the same, the capital 
must be doubled. In order that the mass of profit made at 
a declining rate of profit may remain the same as before, the 
multiplier indicating the growth of the total capital must be 
equal to the divisor indicating the fall of the rate of profit. 
If the rate of profit falls from 40 to 20, the total capital must 
rise at the rate of 20 to 40, in order that the result may re- 
main the same. If the rate of profit had fallen from 40 to 8, 



The Theory of the Law. 261 

the capital would have to increase at the rate of 8 to 40, or 
five times its value. A capital of 1,000,000 at a rate of 40% 
produces 400,000, and a capital of 5,000,000 at a rate of 8% 
likewise produces 400,000. This applies, so long as the re- 
sult is to remain the same. But if the result is to be higher, 
then the capital must grow at a faster rate than the rate of 
profit falls. In other words, in order that the variable por- 
tion of the total capital may not only remain the same, but 
may also increase absolutely, although its percentage in the 
total capital falls, the total capital must grow at a higher 
rate than the percentage of the variable capital falls. It 
must grow at such a rate that it requires in its new compo- 
sition not merely the same old variable capital, but more than 
it for the purchase of labor-power. If the variable portion 
of a capital of 100 falls from 40 to 20, the total capital must 
rise higher than 200, in order to be able to employ a larger 
variable capital than 40. 

Even if the mass of the exploited laboring population were 
to remain constant, and only the length and intensity of the 
working day to increase, the mass of the invested capital 
would have to increase, since it must rise for the mere pur- 
pose of employing the same mass of labor under the old condi- 
tions of exploitation as soon as the composition of capital va- 
ries. 

In short, the same development of the social productivity 
of labor expresses itself in the course of capitalist production 
on the one hand in a tendency to a progressive fall of the rate 
of profit, and on the other hand in a progressive increase of 
the absolute mass of the appropriated surplus-value, or profit ; 
so that on the whole a relative decrease of variable capital and 
profit is accompanied by an absolute increase of both. Tliis 
twofold effect, as we have seen, can express itself only in a 
growth of the total capital at a ratio more rapid than that 
expressed by the fall in the rate of profit. In order that an 
absolutely increased variable capital may be employed in a 
capital of higher composition, that is, a capital in which the 
constant capital has relatively increased still more than the 
variable, the total capital must not only grow in proportion 



2^2 Capitalist Production. 

to its higher composition, but even still more rapidly. It 
follows, then, that an ever larger quantity of capital is re- 
quired in order to employ the same, and still more an in- 
creased amount of labor-power, to the extent that the capital- 
ist mode of production develops. The increasing productiv- 
ity of labor thus creates necessarily and permanently an 
apparent overpopulation of laboring people. If the variable 
capital forms only one-sixth of the total capital instead of one- 
half, as before, then the total capital must be trebled in order 
to employ the same amount of labor-power. And if the 
labor-power to be employed is doubled, then the total capital 
must be multiplied by six. 

Political economy has so far been unable to explain the law 
of the falling tendency of the rate of profit. So it pointed as 
a consolation to the increasing mass of profit, tlie increase 
in the absolute magnitude of profit for the individual capital- 
ist as well as for the social capital, but even this consolation 
was based on mere commonplaces and probabilities. 

It is simply a tautology to say that the mass of profit is 
determined by two factors, namely first the rate of profit, and 
secondly by the mass of capital invested at this rate. It is 
therefore but a corollary of this tautology to say that there is 
a possibility for the increase of the mass of profit even though 
the rate of profit may fall at the same time. This does not 
help us to get one step farther, since there is also a possibility 
that the capital may increase without resulting in an in- 
crease of the mass of profit, and that it may even increase 
while the mass of profit is already falling. For 100 at 25% 
make 25, while 400 at 5% make only 20.^^ But if the same 

35 " \yg should also expect that, however the rate of the profits of stock might 
diminish in consequence of the accumulation of capital on the land and the rise 
of wages, yet the aggregate amount of profits would increase. Thus, supposing 
that, with repeated accumulations of 100,000 p.st., the rate of profits should fall 
from 20 to 19, to 18, to 17%, a constantly diminishing rate; we should expect 
that the whole amount of profits received by those successive owners of capital 
would be always progressive; that it would be greater when the capital was 200,000 
p.st., than when 100,000 p.st.; still greater when 300,000 p.st.; and so on, increas- 
ing, though at a diminishing rate, with every increase of capital. This progression, 
however, is only true for a certain time; thus 19% on 200,000 p.st. is more than 
20 on 100,000 p.st.; again 18% on .300,000 p.st. is more than 19% on 200,000 p.st.; 
but after capital has accumulated to a large amount, and profits have fallen, the 
further accumulation diminishes the aggregate of profits. Thus, suppose the ac- 



The Theory of the Law. 26^ 

causes, wliicli bring about a fall in the rate of profit, promote 
the accumulation, that is, the formation of additional capital, 
and if each additional capital employs additional labor and 
produces additional surplus-value; when, on tlie other hand, 
the mere fall in the rate of profit implies the fact that the 
constant capital, and with it the total old capital, have in- 
creased, then this process ceases to be mysterious. We shall 
see later, to what falsifications of calculations some people 
have recourse in order to deny the possibility of an increase 
in the mass of profits while the rate of profits is simul- 
taneously decreasing. 

We have shown that the same causes, which bring about a 
tendency of the average rate of profits to fall, necessitate also 
an accelerated accumulation of capital and consequently an 
increase in the absolute magnitude, or total mass, of the sur- 
plus-labor (surplus-value, profit) appropriated by it. Just 
as everything is reversed in competition, and thus in the con- 
sciousness of its agents, so is also this law, this internal and 
necessary connection between two apparent contradictions. 
It is evident, within the proportions indicated above, that a 
capitalist disposing of a large capital will receive a larger 
mass of profits than a small capitalist making apparently high 
profits. A superficial observation of competition shows fur- 
thermore that under certain circumstances, when the greater 
capitalist wishes to make more room for himself on the market 
by pushing aside the smaller ones, as happens in times of 
commercial crises, he makes a practical use of this, that is, he 
lowers his rate of profit intentionally in order to crowd the 
smaller ones off the field. Particularly merchant's capital, as 
we shall show at length later on, shows symptoms, which seem 
to attribute the fall in profits to an expansion of the business, 

cumulation should be 1,000,000 p.st., and the profits 7%, the whole amount of 
profits will be 70,000 p.st.; now if an addition of 100,000 p.st. capital be made 
to the million, and profits should fall to 6%, 66,000 p.st. or a diminution of 4,000 
p.st. will be received by the owners of the stock, although the whole amount of 
stock will be increased from 1,000,000 p.st. to 1,100,000 p.st." — Ricardo, Political 
Economy, chapter VII (in Works, McCulloch Edition, 1852, page 68). — The fact 
is, that the assumption has here been made that the capital increases from 1,000,000 
to 1,100,000, that is, by 10%, while the rate of profit falls from 7 to 6%, or 
14 3/7%. Hence those tears! 



264 Capitalist Production. 

and thus of capital. We shall later on give a scientific ex- 
pression for this false conception. Similar superficial obser- 
vations result from the comparison of rates of profit made in 
some particular lines of business, according to whether they 
are subject to free competition or to monopoly. The utterly 
shallow conception existing in the heads of the agents of com- 
petition is found in our Koscher, namely the idea that a re- 
duction of the rate of profits is " more prudent and humane." 
The fall in the rate of profit is in this case attributed to an 
increase of capital, it appears as a consequence of this in- 
crease, and of the resultant calculation of the capitalist that 
the mass of profits to be pocketed by him will be greater at a 
smaller rate of profits. This entire conception (with the ex- 
ception of that of Adam Smith, which we shall mention later) 
rests on the utter misapprehension of what the average rate 
of profit represents and on the crude idea that prices are in- 
deed determined by adding a more or less arbitrary amount 
of profit to the actual value of the commodities. Crude as 
these ideas are, they arise necessarily out of the inverted as- 
pect which the immanent laws of capitalist production repre- 
sent under competition. 

The law that the fall in the rate of profit due to the de- 
velopment of the productive powers is accompanied by an in- 
crease in the mass of profit expresses itself furthermore in 
the fact that a fall in the price of commodities produced by 
capital is accompanied by a relative increase of the masses of 
profit contained in them and realised by their sale. 

Since the development of the productive powera and the 
higher composition of capital corresponding to it set in motion 
an ever increasing quantity of means of production with an 
ever decreasing quantity of labor, every aliquot part of the 
total product, every single commodity, or every particular 
quantity of commodities in the total mass of products absorbs 
less living labor, and also contains less materialised labor, both 
as to the wear and tear of fixed capital and to the raw and 
auxiliary materials consumed. Every single commodity, 
then, contains a smaller amount of labor materialised in means 
of production and of labor newly added during production. 



The Theory of the Law. 26$ 

Hence the price of the individual commodity falls. The 
mass of profits contained in the individual commodities may 
nevertheless increase^ if the rate of the absolute or relative 
surplus-value grows. The commodity then contains less 
newly added labor, but its 'unpaid portion grows over its paid 
portion. However, this is the case only within certain limits. 
In the course of the development of production, with the 
enormously growing absolute decrease of the amount of living 
labor newly embodied in the individual commodities, the mass 
of unpaid labor contained in them will likewise decrease ab- 
solutely, however much it may have 'grown as compared to 
their paid portion. The mass of profit on each individual 
commodity will decrease considerably with the development 
of the productive power of labor, in spite of the increase of 
the rate of surplus-value. And this reduction, the same as 
the fall in the rate of profits, is only delayed by the cheap- 
ening of the elements of constant capital and the other cir- 
cumstances mentioned in the first part of this volume, which 
increase the rate of profit at a stable, or even falling, rate of 
surplus-value. 

To say that the price of the individual commodities falls, 
which together make up the total product of the capital, is 
simply to say that a certain quantity of labor is realised in 
a larger quantity of commodities, so that each individual com- 
modity contains less labor than before. This is the case even 
if the price of one of the parts of constant capital, such as 
raw material, etc., should rise. With the exception of a few 
cases (for instance, if the productive power of labor cheapens 
all the elements of constant and variable capital uniformly) 
the rate of profit will fall in spite of the increased rate of sur- 
plus-value, 1), because even a larger unpaid portion of the 
smaller total amount of newly added labor is smaller than , 
a smaller aliquot portion of unpaid labor was in the former 
large amount of total labor, and 2), because the higher com- 
position of the capital is expressed through the individual 
commodity by the fact that that portion of its value, in which 
newly added labor is materialised, decreases as compared to 
that portion of its value, which represents raw material, aux- 



266 Capitalist Production. 

iliary material, and wear and tear of fixed capital. This 
change in the proportions of the various component parts of 
the price of the individual commodities, the decrease of that 
portion of their price, in which newly added labor is materi- 
alised, and the increase of that portion, in which formerly ma- 
terialised labor is represented, is that form which expresses 
through the price of the individual commodities the de- 
crease of the variable capital as compared to the constant cap- 
ital. To the extent that this decrease is absolute for a cer- 
tain amount of capital, for instance 100, it is also absolute 
for every individual commodity as an aliquot part of the re- 
produced capital. However, the rate of profit, if calculated 
merely on the elements of the price of the individual com- 
modity, would be different from what it actually is. The 
reason for this is as follows: 

[The rate of profit is calculated on the total capital in- 
vested, but only for a definite time, in fact, for one year. 
The rate of profit is the proportion of the surplus-value, or 
profit, made and realised on the total capital and calculated in 
percentages. It is, therefore, not necessarily equal to a rate 
of profit, whose calculation was not based on one year, but on 
the period of turn-over of the invested capital. These two 
things do not coincide, unless the capital is turned over ex- 
actly in one year. 

On the other hand, the profit made in the course of one 
year is merely the sum of the profits on the commodities pro- 
duced and sold during the same year. Now, if we calculate 
the profit on the cost-price of the commodities, we obtain 
a rate of profit = -^, in which p stands for the profit realised 
during one year, and k for the sum of the cost-prices of the 
commodities produced and sold during that year. It is evi- 
dent that this rate of profit -^ will not coincide with the actual 
rate of profit -^ , or mass of profit divided by the total capital, 
unless k = C, that is, unless the capital is turned over in 
exactly one year. 

Let us take three different conditions of some industrial 
capital. 



The Theory of the Law. 26^ 

I. — A capital of 8,000 p.st. produces and sells annually 
5,000 pieces of commodities, at 30 sh. per piece, making an 
annual turn-over of 7,500 p.st. It makes a profit of 10 sh. 
on each piece, or 2,500 p.st. per year. Every piece, then, 
contains 20 sh. of capital advance, and 10 sh. of profit, so 
that the rate of profit per piece is ^|^ = 50%. The turned- 
over sum of 7,500 p.st. contains 5,000 p.st. of advanced capi- 
tal and 2,500 p.st. of profits. Eate of profit for one turn- 
over, -Y, likewise 50%. But the rate of profit calculated on 
the total capital is the rate of profit -^=f-f^^ = Sl^%. 

II. — Let the capital increase to 10,000 p.st. Owing to an 
increased productivity of labor, let it be enabled to produce an- 
nually 10,000 pieces of commodities at a cost-price of 20 sh. 
per piece. Let these commodities be sold at a profit of 4 sh., 
in other words, at 24 sh. per piece. In that case the price of 
the annual product is 12,000 p.st., of which 10,000 p.st. is 
advanced capital and 2,000 p.st. profits. The rate of profit 
X is To per piece and -j^-oW" ^^^ ^^^ annual turn-over, or in 
both cases ^20%. And since the total capital is equal to 
the sum of the cost-prices, namely 10,000 p.st., it follows that 
■^, the actual rate of profit, is in this case also 20%, 

III. — Let the capital increase to 15,000 p.st., owing to a 
further growth of the productive power of labor, and let it 
produce annually 30,000 pieces of commodities at a cost- 
price of 13 sh. per piece, each piece being sold at a profit of 
2 sh., or at 15 sh. per piece. The annual turn-over amounts 
in that case to 30,000 X 15 sh. — 22,500 p.st., of which 
19,500 are advanced capital and 3,000 p.st. profits. The rate 
of profit -f- is then y^ = -^«g^ = 15y\%. But the actual 

rate of profit c"~"T5^o"^^ 20%. 

We see, then, that only in case II, where the turned-over 
capital-value is equal to the total capital, is the rate of profit 
per piece, or per total amount turn-over, the same as the rate 
of profit calculated on the total capital. In case I, where 
the amount of the turn-over is smaller than the total capital, 
the rate of profit calculated on the cost-price of the commodi- 
ties is higher. In case III, where the total capital is smaller 



268 Capitalist Production. 

tlian the amount of the turn-over, the rate of profit calculated 
on the cost-price of commodities is smaller than the actual 
rate calculated on the total capital. This is a general rule. 

In commercial practice the turn-over is generally calcu- 
lated inaccurately. It. is assumed that the capital has heen 
turned over once, as soon as the sum of the realised commod- 
ity-prices equals the sum of the invested total capital. But 
the capital can complete one whole turn-over only in the case 
that the sum of the cost-prices of the realised commodities 
equals the sum of the total capital. — Y. E.] 

This demonstrates once more how important it is under the 
capitalist mode of production that the individual commodities 
or the commodity-product of a certain period should not be 
considered as isolated by themselves, as mere commodities, 
but as products of advanced capital and in their relation 
to the total capital, which produces them. 

Although the rate of profit must be calculated by measuring 
the mass of the produced and realised surplus-value by the 
consumed portion of capital reappearing in the commodities 
as well as by the sum of this portion plus that portion of 
capital which, though not consumed, is employed and con- 
tinues to serve in production, the mass of profit cannot be 
equal to anything but the mass of profit, or surplus-value, 
contained in the commodities themselves and to be realised by 
their sale. 

If the productivity of industry increases, the prices of the 
individual commodities fall. There is less paid and unpaid 
labor contained in them. Let the same labor produce, say, 
thrice its former product. Then the individual product re- 
quires two-thirds less labor. And since the profit can con- 
stitute but a portion of the amount of labor congealed in the 
individual commodities, the mass of profit in the individual 
commodities must decrease. And this must hold good, within 
certain limits, even if the rate of surplus-value should rise. 
In any case, the mass of profits on the total product does not 
fall below the original mass of profits so long as the capital 
employs the same number of laborers at the same degree of 
exploitation. (This may also take place, if fewer laborers 



The Theory of the Lazv. 269 

are employed at a higher rate of exploitation.) For to the 
same extent that the mass of profit on the individual product 
decreases does the number of products increase. The mass of 
profits remains the same, only it is distributed differently 
over tlie total amount of commodities. ISTor does this alter the 
division of the amount of value created by newly added labor 
between the laborers and capitalists. The mass of profit can- 
not increase, so long as the same amount of labor is employed, 
unless the unpaid surplus-labor increases, or, -^supposing the 
intensity of exploitation to remain the same, unless the num- 
ber of laborers grows. Or, both of these causes may, of 
course, combine to produce this result. In all these cases, 
which, however, according to our assumption, presuppose an 
increase of the constant capital as compared to the variable 
and an increase in the magnitude of the total capital, the in- 
dividual commodity contains a smaller mass of profit and the 
rate of profit falls even if it is calculated on the individual 
commodity. A given quantity of additional labor is ma- 
terialised in a larger quantity of commodities. The price of 
the individual commodities falls. Abstractly speaking, the 
rate of profit may remain the same, even though the price of 
the individual commodity may fall as a result of an increase 
in the productivity of labor and a simultaneous increase in 
the number of these cheaper commodities, for instance, if the 
increase in the productivity of labor extended its effects uni- 
formly and simultaneously to all the elements of the commodi- 
ties, so that the total price of the commodities would fall in 
the same proportion in which the productivity of labor would 
increase, while on the other hand the mutual relations of the 
different elements of the price of commodities woiild remain 
the same. The rate of profit might even rise, if a rise in the 
rate of surplus-value were accompanied by a considerable re- 
duction in tlie value of the elements of constant, and par- 
ticularly of fixed, capital. But in reality, as we have seen, 
the rate of profit will fall in the long run. In any case, a 
fall in the price of any individual commodity does not by itr 
self give a clue to the rate of profit. Everything depends on 
the magnitude of the total capital invested in its production. 



270 Capitalist Production. 

For instance^ if the price of one yard of fabric falls from 3 
sh. to If sli. ; if we know that it contained before this reduc- 
tion in price 1| sh. worth of constant capital, yarn, etc., f sh. 
wages, and ^ sh. profit, while it contains after this reduction 
1 sh. of constant capital, ^ sh. of wages, and -J sh. of profit, 
we cannot tell whether the rate of profit has remained the 
same or not. This depends on the question, whether the ad- 
vanced total capital has increased, and how much, and how 
many yards of fabric more it produces in a given time. 

This phenomenon arising from the nature of the capitalist 
mode of production, namely, that an increase in the produc- 
tivity of labor implies a fall in the price of the individual 
commodity, or of a certain mass of commodities, an increase 
in the number of commodities, a reduction of the mass of 
profit in the individual commodity and of the rate of profit 
on the aggregate of commodities, an increase of the mass of 
profit in the total quantity of commodities, this phenomenon 
shows itself on the surface only in a reduction of the mass of 
profit in the individual commodities, in a fall of their prices, 
in an increase of the mass of profits in the augmented number 
of commodities as a whole, which have been produced by the 
total capital of society or by that of the individual capitalist. 
It is then imagined that the capitalist adds less profits to the 
price of the individual commodities on his own free volition 
and makes up for it by the returns on a greater number of 
commodities produced by him. This conception rests upon 
the idea of profit upon alienation, which in its turn is deduced 
from the ideas of merchant's capital. 

We have seen previously, in parts four and seven of Book 
I, that the growth in the mass of commodities resulting from 
the productivity of labor and the consequent cheapening of 
the commodities as such (unless these commodities become de- 
termining elements in the price of labor-power) do not affect 
the proportion between paid and unpaid labor in the indi- 
vidual commodities, in spite of the fall in price. 

Since everything appears inverted under competition, the 
individual capitalist may imagine: 1) That he is reducing 
his profit on the individual commodity by cutting its price^i 



The Theory of the Law. 2yi 

but still making a greater profit on account of the larger quan- 
tity of commodities wliieh he is selling; 2) that he is fixing 
the price of the individual commodities and determining the 
price of the total product by multiplication, while the original 
process is really one of division (see Book I, chapter XII) 
and the multiplication is correct only in a secondary way, 
being based on that division. The vulgar economist does 
practically no more than to translate the queer concepts of 
the capitalists, who are in the thralls of competition, into a 
more theoretical and generalising language and to attempt a 
vindication of the correctness of those conceptions. 

Practically, a fall in the prices of commodities and a rise 
in the mass of profits contained in the augmented mass of these 
cheapened commodities is but another expression for the law 
of the falling rate of profit with a simultaneous increase in 
the mass of profits. 

The analysis of the extent to which a falling rate of profit 
may coincide with rising prices does not belong in this chap- 
ter any more than that of the point previously discussed in 
volume I, chapter XII, concerning relative surplus-value. A 
capitalist working with improved methods of production that 
have not yet become general sells below the market-price, but 
above his individual price of production. In this way his 
rate of profit rises until competition levels it down. During 
this leveling period the second requisite puts in its appear- 
ance, namely the expansion of the invested capital. Accord- 
ing to the degree of this expansion the capitalist will be en- 
abled to employ a part of his former laborers under the new 
conditions, and eventually all of them or more, in other words, 
he will be enabled to produce the same or a greater mass of 
profits. 



27^ Capitalist Production. 



CHAPTER Xiy. 

COUNTEEACTING CAUSES. 

If we consider the enormous development of the productive 
powers of labor, even comparing but the last 30 years with all 
former periods; if we consider in particular the enormous 
mass of fixed capital, aside from machinery in the strict mean- 
ing of the term, passing into the process of social production 
as a whole, then the difficulty, which has hitherto troubled the 
vulgar economists, namely that of finding an explanation for 
the falling rate of profit, gives way to its opposite, namely to 
the question ; How is it that this fall is not greater and more 
rapid ? There must be some counteracting influences at work, 
which thwart and annul the effects of this general law, leav- 
ing to it merely the character of a tendency. Tor this reason 
we have referred to the fall of the average rate of profit as a 
tendency to fall. 

The following are the general counterbalancing causes: 

I. Raising the Intensity of Exploitation. 
The rate at which labor is exploited, the appropriation 
of surplus-labor and surplus-value, is raised by a prolonga- 
tion of the working day and an intensification of labor. 
These two points have been fully discussed in volume I as 
incidents to the production of absolute and relative surplus- 
value. There are many ways of intensifying labor, which 
imply an increase of the constant capital as compared to the 
variable, and consequently a fall in the rate of profit, for in- 
stance setting a laborer to watch a larger number of ma- 
chines. In such cases — and in the majority of manipula- 
tions sei'ving to produce relative surplus-value — the same 
causes, which bring about an increase in the rate of surplus- 
value, may also imply a fall in the mass of surplus- 
value, looking upon the matter from the point of view of the 



Counteracting Causes. 273 

total quantities of invested capital. But there are other 
means of intensification, such as increasing the speed of ma- 
chinery, which, although consimiing more raw material, and, 
so far as the fixed capital is concerned, wearing out the ma- 
chinery so much faster, nevertheless dp not affect the relation 
of its value to the price of labor set in motion by it. It is 
particularly the prolongation of the working day, this inven- 
tion of modern industry, which increases the mass of appro- 
priated surplus-labor without essentially altering the propor- 
tion of the employed labor-power to the constant capital 
set in motion by it, and which tends to reduce this capital 
relatively, if anything. Tor the rest, we have already dem- 
onstrated — what constitutes the real secret of the tendency 
of the rate of profit to fall — that the manipulations made 
for the purpose of producing relative surplus-value amount 
on the whole to this: That on one side as much as possible 
of a certain quantity of labor is transformed into surplus- 
value, and that on the other hand as little labor as possible is 
employed in proportion to the invested capital, so that the 
same causes, which permit the raising of the intensity of 
exploitation, forbid the exploitation of the same quantity of 
labor by the same capital as before. These are the v>'arring 
tendencies, which, while aiming at a raise in the rate of sur- 
plus-value, have at the same time a tendency to bring about 
a fall in the mass of surplus-value, and therefore of the rate 
of surplus-value produced by a certain capital. It is fur- 
thermore appropriate to mention at this point the extensive 
introduction of female and child labor, in so far as the whole 
family must produce a larger quantity of surplus-value for a 
certain capital than before, even in case the total amount of 
their wages should increase, which is by no means general. 

Whatever tends to promote the production of relative sur- 
plus-value by mere improvements in methods, for instance in 
agriculture, without altering the magnitude of the invested 
capital, has the same effect. While the constant capital does 
not increase relatively to the variable in such cases, taking the 
variable capital as an index of the amount of labor-power 
employed; the mass of the product does increase in proportion 



274 Capitalist Production. 

to the labor-power employed. The same takes place, when the 
productive power of labor (whether its product passes into 
the consumption of the laborer or into the elements of con- 
stant capital) is freed from obstacles of circulation, of arbi- 
trary or other restrictions which become obstacles in course 
of time, in short, of fetters of all kinds, without touching di- 
rectly the proportion between the variable and the constant 
capital. 

It might be asked, whether the causes checking the fall of 
the rate of profit, but always hastening it in the last analysis, 
include the temporary raise in surplus-value above the aver- 
age level, which recur now in this, now in that line of pro- 
duction for the benefit of those individual capitalists, who 
make use of inventions, etc., before they are generally intro- 
duced. This question must be answered in the affirmative. 

The mass of surplus-value produced by a capital of a cer- 
tain magnitude is the product of two factors, namely of the 
rate of surplus-value multiplied by the number of laborers 
employed at this rate. Hence it depends on the number of 
laborers, when the rate of surplus-value is given, and on the 
rate of surplus-value, when the number of laborers is given. 
In short, it depends on the composite proportion of the ab- 
solute magnitudes of the variable capital and tlie rate of 
surplus-value. H^ow we have seen, that on an average the same 
causes, which raise the rate of relative surplus-value, lower 
the mass of the employed labor-power. It is evident, however, 
that there will be a more or less in this according to the defi- 
nite proportion, in which the opposite movements exert them- 
selves, and that the tendency to reduce the rate of profit will 
be particularly checked by a raise in the rate of absolute sur- 
plus-value due to a prolongation of the working day. 

We saw in the case of the rate of profit, that a fall in the 
rate was generally accompanied by an increase in the mass of 
profit, on account of the increasing mass of the total capital 
employed. From the point of view of the total. variable cap- 
ital of society, the surplus-value produced by it is equal to 
the profit produced by it. Both the absolute mass and the 
absolute rate of surj^lus-value have tlius increased. The one 



Counteracting Causes. 275 

has increased, because the quantity of labor-power employed 
by society has grown, the other, because the intensity of ex- 
ploitation of this labor-power has increased. But in the case 
of a capital of a given magnitude, for instance 100, the rate 
of surplus-value may increase, while the mass may decrease 
on an average; for the rate is determined by the proportion, 
in which the variable capital produces value, while its mass 
is determined by the proportional part which the variable 
capital constitutes in the total capital. 

The rise in the rate of surplus-value is a factor, which de- 
termines also the mass of surplus-value and thereby the rate 
of profit, for it takes place especially under conditions, in 
which, as we have seen, the constant capital is either not in- 
creased at all relatively to the variable capital, or not in- 
creased in proportion. This factor does not suspend the gen- 
eral law. But it causes that law to become more of a tend- 
ency, that is, a law whose absolute enforcement is checked, 
retarded, weakened, by counteracting influences. Since the 
same causes, which raise the rate of surplus-value (even a 
prolongation of the working time is a result of large scale 
industry), also tend to decrease the labor-power employed by 
a certain capital, it follows that these same causes also tend 
to reduce the rate of profit and to check the speed of this fall. 
If one laborer is compelled to perform as much labor as would 
be rationally performed by two, and if this is done under cir- 
cumstances, in which this one laborer can replace three, then 
this one will produce as much surplus-labor as was formerly 
produced by two, and to that extent the rate of surplus-value 
will have risen. But this one will not produce as much as 
formerly three, and to that extent the mass of surplus-value 
will have decreased. But this reduction in mass will be 
compensated, or limited, by the rise in the rate of surplus- 
value. If the entire population is employed at a higher rate 
of surplus-value, the mass of surplus-value will increase, al- 
though the population may remain the same. It will increase 
still more, if the population increases at the same time. And 
although this goes hand in hand with a relative reduction of 
the number of laborers employed in proportion to the magni- 



276 Capitalist Production. 

tude of the total capital, yet this reduction is checked or mod- 
erated by the rise in the rate of surplus-value. 

Before leaving this point, we wish to emphasize once more 
that, with a capital of a certain magnitude, the rate of sur- 
plus-value may rise, while its mass is decreasing, and vice 
versa. The mass of surplus-value is equal to the rate multi- 
plied by the number of laborers; however, this rate is never 
calculated on the total, but only on the variable capital, ac- 
tually only for a day at a time. On the other hand, with a 
given magnitude of a certain capital, the rate of profit can 
never fall or rise, without a simultaneous fall or rise in the 
mass of surplus-value. . 

II. Depression of ^Yages Below their Value. 
This is mentioned only empirically at this place, since it, 
like many other things, which might be enumerated here, has 
nothing to do with the general analysis of capital, but belongs 
in a presentation of competition, which is not given in this 
work. However, it is one of the most important causes check- 
ing the tendency of the rate of profit to fall. 

III. Cheapening of the Elements of Constant Capital. 
Everything that has been said in the first part of this vol- 
ume about the causes, which raise the rate of profit while the 
rate of surplus-value remains the same, or independently of 
the rate of surplus-value, belongs here. This applies particu- 
larly to the fact that, from the point of view of the total 
capital, the value of the constant capital does not increase in 
the same proportion as its material volume. For instance, 
the quantity of cotton, which a single European spinning op- 
erator works up in a modern factory, has grown in a colossal 
degree compared to the quantity formerly worked up by a 
European operator with a spinning wheel. But the value 
of the worked-up cotton has not grown in proportion to its 
mass. The same holds good of machinery and other fixed 
capital. In short, the same development, which increases the 
mass of the constant capital relatively over that of the vari- 
able, reduces the value of its elements as a result of the in- 



Counteracting Causes. 2"]^ 

creased productivity of labor. In this way the value of the 
constant capital although continually increasing, is prevented 
from increasing at the same rate as its material volume, that 
is, the material volume of the means of production set in 
motion by the same amount of labor-power. In exceptional 
cases the mass of the elements of constant capital may even 
increase, while its value remains the same or even falls. 

The foregoing bears upon the depreciation of existing cap- 
ital (that is, of its material elements) which comes with the 
development of industry. This is another one of the causes 
which by their constant effects tend to check the fall of the 
rate of profit, although it may under certain circumstances 
reduce the mass of profit by reducing the mass of capital 
yielding a profit. This shows once more that the same causes, 
which bring about a tendency of the rate of profit to fall, 
also check the realisation of this tendency. 

IV. Belative Overpopulation. 
The production of a relative surplus-population is insep- 
arable from the development of the productivity of labor ex- 
pressed by a fall in the rate of profit, and the two go hand 
in hand. The relative overpopulation becomes so much more 
apparent in a certain country,' the more the capitalist mode of 
production is developed in it. This, again, is on the one 
hand a reason, which explains why the imperfect subordina- 
tion of labor to capital continues in many lines of production, 
and continues longer than seems at first glance compatible 
with the general stage of development. This is due to the 
cheapness and mass of the disposable or unemployed wage 
laborers, and to the greater resistance, which some lines of 
production, by their nature, oppose to a transformation of 
manufacture into machine production. On the other hand, 
new lines of production are opened up, especially for the pro- 
duction of luxuries, and these lines take for their basis this 
relative overpopulation set free in other lines of production 
by the increase of their constant capital. These new lines 
start out with living labor as their predominating element, 
and go by degrees through the same evolution as the other 



278 Capitalist Production. 

lines of production. In either case the variable capital con- 
stitutes a considerable proportion of the total capital and 
wages are below the average, so that both the rate and mass 
of surplus-value are exceptionally high. Since the average 
rate of profit is formed by leveling the rates of profit in the 
individual lines of production, the same cause, which brings 
about a falling tendency of the rate of profit, once more pro- 
duces a counterbalance to this tendency and paralyses its 
effects more or less. 

V. Foreign Trade. 

To the extent that foreign trade cheapens partly the ele- 
ments of constant capital, partly the necessities of life for 
which the variable capital is exchanged, it tends to raise the 
rate of profit by raising the rate of surplus-value and lower- 
ing the value of the constant capital. It exerts itself gen- 
erally in this direction by permitting an expansion of the scale 
of production. But by this means it hastens on one hand 
the process of accumulation, on the other the reduction of the 
variable as compared to the constant capital, and thus a fall 
in the rate of profit. In the same way the expansion of for- 
eign trade, which is the basis of the capitalist mode of pro- 
duction in its stages of infancy, has become its own product in 
the further progress of capitalist development through its in- 
nate necessities, through its need of an ever expanding market. 
Here we see once more the dual nature of these effects. (Ri- 
cardo entirely overlooked this side of foreign trade.) 

Another question, which by its special nature is really be- 
yond the scope of our analysis, is the following: Is the 
average rate of profit raised by the higher rate of profit, which 
capital invested in foreign, and particularly in colonial trade, 
realises ? 

Capitals invested in foreign trade are in a position to yield 
a higher rate of profit, because, in the first place, they come 
in competition with commodities produced in other countries 
with lesser facilities of production, so that an advanced coun- 
try is enabled to sell its goods above their value even when it 
sells them cheaper than the competing countries. To the 



Counteracting Causes. 279 

extent that tlie labor of the advanced countries is here ex- 
ploited as a labor of a higher specific weight, the rate of profit 
rises, because labor which has not been paid as being of a 
higher quality is sold as such. The same condition may ob- 
tain in the relations with a certain country, into which com- 
modities are exported and from which commodities are im- 
ported. This country may offer more materialised labor in 
goods than it receives, and yet it may receive in return com- 
modities cheaper than it could produce them. In the same 
way a manufacturer, who exploits a new invention before it 
has become general, undersells his competitors and yet sells 
his commodities above their individual values, that is to say, 
he exploits the sjDOcifically higher productive power of the 
labor employed by him as surplus-value. By this means he 
secures a surplus-profit. On the other hand, capitals invested 
in colonies, etc., may yield a higher rate of profit for the sim- 
ple reason that the rate of profit is higher there on account 
of the backward development, and for the added reason, that 
slaves, coolies, etc., permit a better exploitation of labor. We 
see no reason, why these higher rates of profit realised by 
capitals invested in certain lines and sent home by them 
should not enter as elements into the average rate of profit 
and tend to keep it wp to that extent.^ ^ We see so much less 
reason for the contrary opinion, when it is assumed that such 
favored lines of investment are subject to the laws of free 
competition. What Eicardo has in mind as objections, is 
mainly this : With the higher prices realised in foreign trade, 
commodities are bought abroad and sent home. These com- 
modities are sold on the home market, and this can constitute 
at best but a temporary advantage of the favored spheres of 
production over others. This aspect of the matter is changed, 
when we no longer look upon it from the point of view of 
money. The favored country recovers more labor in exchange 
for less labor, although this difference, this surplus, is pock- 
eted by a certain class, as it is in any exchange between labor 

'' Adam Smith was right in this respect, contrary to Ricardo, who said : " They 
contend the equality of profits v/ill be brought about by the general rise of profits; 
and I am of opinion that the profits of the favoured trade will speedily submit to 
the general level. (Works, MacCulloch ed., p. 73.) 



28o Capitalist Production. 

and capital. So far as the rate of profit is higher, because it 
is generally higher in the colonial country, it may go hand in 
hand with a low level of prices, if the natural conditions are 
favorable. It is true that a compensation takes place, but 
it is not a compensation on the old level, as Ricardo thinks. 

However, this same foreign trade develops the capitalist 
mode of production in the home country. And this implies 
the relative decrease of the variable as compared to the con- 
stant capital, while it produces, on the other hand, an over- 
production for the foreign market, so that it has once more 
the opposite effect in its further course. 

And so we have seen in a general way, that the same causes, 
which produce a falling tendency in the rate of profit, also 
call forth counter-effects, which check and partly paralyse this 
fall. This law is not suspended, but its effect is weakened. 
Otherwise it would not be the fall of the average rate of 
profit, which would be unintelligible, but rather the relative 
slowness of this fall. The law therefore shows itself only as 
a tendency, whose effects become clearly marked only under 
certain conditions and in the course of long periods. 

Before passing on to something new, we will, for the sake 
of preventing misunderstanding, repeat two statements, which 
we have substantiated at different times. 

1) The same process, which brings about a cheapening of 
commodities in the course of development of the capitalist 
mode of production, also causes a change in the organic com- 
position of the social capital invested in the production of 
commodities, and thereby lowers the rate of profit. We must 
be careful, then, not to confound the reduction in the relative 
cost of an individual commodity, including that portion of its 
cost which represents Avear and tear of machinery, with the 
relative rise in the value of the constant as compared to the 
variable capital, although vice versa every reduction in the 
relative cost of the constant capital, whose material elements 
retain the same volume or increase in volume, tends to raise 
the rate of profit, in other words, tends to reduce the value of 
the constant capital to that extent as compared with the shrink- 
ing proportions of the employed variable capital. 



Counteracting Causes. 281 

2) The fact that the additional living labor contained in 
the individual commodities, which together make up the prod- 
uct of capital, ■ stands in a decreasing proportion to the ma- 
terials and instruments of labor consumed bj them ; the fact, 
that an ever decreasing quantity of additional living labor is 
materialised in them, because their production requires less 
labor to the extent that the productive power of society is 
developed, — this fact does not touch the proportion, accord- 
ing to which the living labor contained in the commodities 
is divided into paid and unpaid labor. On the other hand, 
although the total quantity of additional living labor con- 
tained in them decreases, the unpaid portion increases over 
the paid portion, either by an absolute, or by a proportional 
reduction of the paid portion; for the same mode of produc- 
tion, which reduces the total quantity of the additional living 
labor in the commodities, is accompanied by a rise of the ab- 
solute and relative surplus-value. The falling tendency of 
the rate of profit is accompanied by a rising tendency of the 
rate of surplus-value, that is, in the rate of exploitation. 
IN^othing is more absurd, for this reason, than to explain a 
fall in the rate of profit by a rise in the rate of wages, al- 
though there may be exceptional cases where this may apply. 
Statistics do not become available for actual analyses of the 
rates of wages in different epochs and countries, until the con- 
ditions, which shape the rate of profit, are thoroughly un- 
derstood. The rate of profit does not fall, because labor be- 
comes less productive, but because it becomes more productive. 
Both phenomena, the rise in the rate of surplus-value and 
the fall in the rate of profit, are but specific forms through 
which the productivity of labor seeks a capitalistic expression, 

VL The Increase of Steele Capital. 
The foregoing five points may be supplemented by the fol- 
io Vv'ing, which, however, cannot be more fully detailed for the 
present. A portion of capital serves only as interest-bearing 
capital, and is so calculated, to the extent that capitalist pro- 
duction makes progress and hastens accumulation. This term 
interest-bearing capital is not applied here to capital loaned 



282 Capitalist Production. 

hj a capitalist who is satisfied with interest on it, while the 
industrial capitalist borrowing it pockets the investor's profit. 
This has no bearing upon the level of the average rate of 
profit, for this rate is concerned only with profit as composed 
of interest -f- profit of all sorts -j- ground rent, and the pro- 
portional division into these particular categories is immate- 
rial for it. We speak here of interest-bearing capital in the 
sense that these capitals, although invested in large productive 
enterprises, yield only large or small amounts of interest, so- 
called dividends, after all costs have been paid. This is typ- 
ical of railroads, for instance. These dividends do not help 
to level the average rate of profit, because they represent a 
lower than the average rate of profit. If they did help in this, 
then the average rate of profit would fall much lower. The- 
oretically such capitals may be included in the calculation, 
and in that case the result will be a lower rate of profit than 
that which actually seems to exist and determine the actions 
of the capitalists, since the constant capital is the largest as 
compared to the variable capital precisely in these enterprises. 



CHAPTER XV. 

UNRAVELING THE INTERNAL CONTEADICTIONS OF THE LAW. 

I. General Remarhs. 
We have seen in the first part of this volume, that the rate 
of profit expresses the rate of surplus-value always lower 
than it actually is. We have now seen, that even a rising 
rate of sui-plus-value has a tendency to express itself in a 
falling rate of profit. The rate of profit would be equal to 
the rate of sui-plus-value only if c = 0, that is, if the entire 
invested capital were paid out in wages. A falling rate of 
profit does not express a falling rate of surplus-value, unless 
the proportion of the value of the constant capital to the 
quantity of labor-power set in motion by it remains unchanged, 
or the amount of labor-power has increased relatively over 
the value of the constant capital. 



Internal Contradictions. 283 

Eicardo, under pretense of analysing the race of profit, 
actually analyses only the rate of surplus-value, and he does 
so on the assumption that the working day is intensively and 
extensively a constant magnitude. 

A fall in the rate of profit and a hastening of accumulation 
are in so far only different expressions of the same process as 
both of them indicate the development of the productive 
power. Accumulation in its turn hastens' the fall of the 
rate of profit, inasmuch as it implies the concentration of 
labor on a large scale and thereby a higher composition of 
capital. On the other hand, a fall in the rate of profit hastens 
the concentration of capital and its centralisation through the 
expropriation of the smaller capitalists, the expropriation of 
the last survivers of the direct producers who still have any- 
thing to give up. This accelerates on one hand the accumula- 
tion, so far as mass is concerned, although the rate of accumu- 
lation falls with the rate of profit. 

On the other hand, so far as the rate of self-expansion of 
the total capital, the rate of profit, is the incentive of capi- 
talist production (just as this self-expansion of capital is its 
only purpose, its fall checks the formation of new independent 
capitals and thus seems to threaten the development of the 
process of capitalist production. It promotes overproduction, 
speculation, crises, surplus-capital along with surplus-popula- 
tion. Those economists who, like Ricardo, regard the capi- 
talist mode of production as absolute, feel nevertheless, that 
this mode of production creates its own limits, and therefore 
they attribute this limit, not to production, but to nature (in 
their theory of rent). But the main point in their horror 
over the falling rate of profit is the feeling, that capitalist 
production meets in the development of productive forces a 
barrier, which has nothing to do with the production of wealth 
as such ; and this peculiar barrier testifies to the finiteness and 
the historical, merely transitory character of capitalist pro- 
duction. It demonstrates that this is not an absolute mode 
for the production of wealth, but rather comes in confiict with 
the further development of wealth at a certain stage. 

It is true that Eicardo and his school considered only the 



284 Capitalist Production. 

industrial profit, which includes interest. But the rate of 
ground-rent has likewise a tendency to fall, although its abso- 
Kite mass increases, and it may also increase proportionately 
more than the industrial profit. (See Ed. West, who de- 
veloped the law of ground-rent hefore Kicardo.) If we con- 
sider the total social capital C, and use p'' to indicate the in- 
dustrial profit remaining after the deduction of interest and 
ground rent, i to indicate interest, and r to indicate ground- 
rent, then -^=-^=£^-^^=^4-i-f-i. We have seen that, while 
s, the total amount of surplus-value, is continually increasing 
in the course of capitalist development, nevertheless -^ is 
just as steadily declining, because C grows- still more rapidly 
than s. Therefore it is no contradiction, that p''', i, and r, 
should be steadily increasing, each by itself, while -^=-^ as 
well as ^) -^, and -g-, each by itself, should ever decline, or 
that p'' should increase relatively more than i, or r more 
than p**", or, perhaps, more than p'' and i. With a rise in the 
total surplus-value or profit s => p, but a simultaneous fall in 
the rate of profit •^=-^, the proportional magnitude of the 
parts p'", i, and r, which make up s = p, may change at will 
within the limits set by the total amount of s, without there- 
by affecting the magnitude of s or -^ . 

The mutual variation of p", i and r is but a vary- 
ing distribution of s among different classes. Consequently 
^, JV-, and -^j the rate of industrial profit, the rate of interest, 
and the rate of ground-rent to the total cajDital, may rise rela- 
tively to one another, while -^, the average rate of profit, is 
falling. The only condition is that the sum of all three can- 
not exceed -^. If the rate of profit falls from 50% to 25%, 
because the composition of a certain capital with a rate of 
surplus-value of 100% has changed from 50 c -j- 50 v to 
75 c + 25 V, then a capital of 1,000 will yield a profit of 
500 in the first case, and a capital of 4,000 will yield a profit 
of 1,000 in the second case. We see that s or p have doubled, 
while p' has fallen by one-half. And if that 50% was for- 
merly divided into 20 profit, 10 interest, 20 rent, then ^ =^ 



Internal Contradictions. 285 

20%, -j- = 10%, and -^ = 20%. If conditions remained 
the same after the change from 50% to 25%, then ^ would 
be 10%, -^ would be 5%, and -^ = 10%. „. If,. however, ^ 
should fall to 3% and ~ to 4%, then -J- would rise to 13%. 
The proportional magnitude of r would have risen as against 
p'' and i, but nevertheless p', the rate of profit, would have 
remained the same. Under both assumptions, the sum of 
p'', i, and r would have increased, because it would have been / 

produced by a capital of four times the size of the former. 
By the way, Ricardo's assumption that the industrial profit 
(plus interest) originally pockets the entire profit, is his- 
torically and logically false. It is rather the progress of cap- 
italist production which, 1), places the whole profit at first 
hand at the disposah of the industrial and commercial capi- 
talists for further distribution, and, 2), reduces rent to the 
excess over the profit. On this capitalist basis, rent further 
increases, so far as it is a portion of profit (that is, of the 
surplus-value produced by the total capital), while the specific 
portion of the product, which the capitalist pockets, does not. 
The creation of surplus-value, assuming the necessary 
means of production, or sufficient accumulation of capital, to 
be existing, finds no other limit but the laboring population, 
when the rate of surplus-value, that is, the intensity of ex- 
ploitation, is given; and no other limit but the intensity of 
exploitation, when the laboring population is given. And the 
capitalist process of production consists essentially of the 
production of surplus-value, materialised in the surplus-prod- 
uct, which is that aliquot portion of the produced commodi- 
ties, in which unpaid labor is materialised. It must never 
be forgotten, that the production of this surplus-value — and 
the reconversion of a portion of it into capital, or accumula- 
tion, forms an indispensable part of this production of sur- 
plus-value — is the immediate purpose and the compelling 
motive of capitalist production. It will not do to represent 
capitalist production as something which it is not, that is to 
say, as a production having for its immediate puii^ose the 
consumption of goods, or the production of means of enjoy- 



286 Capitalist Production. 

ment for capitalists. This would be overlooking the specific 
character of capitalist production, which reveals itself in its 
innermost essence. 

The creation of this surplus-value is the object of the direct 
process of production, and this process has no other limits but 
those mentioned above. As soon as the available quantity of 
surplus-value has been materialised in commodities, surplus- 
value has been produced. But this production of surplus- 
value is but the first act of the capitalist process of produc- 
tion, it merely terminates the act of direct production. Capi- 
- tal has absorbed so much unpaid labor. With the develop- 
ment of the process, which expresses itself through a falling 
tendency of the rate of profit, the mass of surplus-value thus 
produced is swelled to immense dimensions. ISTow comes the 
second act of the process. The entire mass of commodities, 
the total product, Avhich contains a portion which is to re- 
produce the constant and variable capital as well as a portion 
representing surplus-value, must be sold. If this is not done, 
or only partly accomplished, or only at prices which are be- 
low the prices of production, the laborer has been none the 
less exploited, but his exploitation does not realise as much 
for the capitalist. It may yield no surplus-value at all for 
him, or only realise a portion of the produced surplus-value, 
or it may even mean a partial or complete loss of his capital. 
j The conditions of direct exploitation and those of the realisa- 
/ tion of surplus-value are not identical. They are separated 
/ logically as well as by time and space. The first are only 
limited by the productive power of society, the last by the 
proportional relations of the various lines of production and 
t by the consuming power of society. This last-named power 
is not determined either by the absolute productive power nor 
ij the absolute consuming power, but by the consuming power 
jased on antagonistic conditions of distribution, which re- 
luces the consumption of the great mass of the population to 
a variable minimum within more or less narrow limits. The 
* consuming power is furthermore restricted by the tendency- 
to accumulate, the greed for an expansion of capital and a 
production of surplus-value on an enlarged scale. This is a 



Internal Contradictions. 287 

law of capitalist production imposed by incessant revolutions 
in the methods of production themselves, the resulting depre- 
ciation of existing capital, the general competitive struggle 
and the necessity of improving the product and expanding the 
scale of production, for the sake of self-preservation and on 
penalty of failure. The market must, therefore, he contin- 
ually extended, so that its interrelations and the conditions 
regulating them assume more and more the form of a natural 
law independent of the producers and become ever more un- 
controllable. This internal contradiction seeks to balance it- 
self by an expansion of the outlying fields of production. But 
to the extent that the productive power develops, it finds itself 
at variance with the narrow basis on which the condition of 
consumption rest. On this self contradictory basis it is no con- 
tradiction at all that there should be an excess of capital simul- 
taneously with an excess of population. For while a combina- 
tion of these two would indeed increase the mass of the pro- 
duced surplus-value, it would at the same time intensify the 
contradiction between the conditions under which this surplus- 
value is produced and those under which it is realised. 

If a certain rate of profit is given, the mass of profit de- 
pends on the magnitude of the advanced capital. Accumula- 
tion is then determined by that portion of this mass, which is 
reconverted into capital. This portion, in its turn, being equal 
to the profit minus the revenue consumed by the capitalists, 
will depend not merely on the value of this mass, but also on 
the cheapness of the commodities which the capitalist can buy 
with it, commodities which pass partly into his individual 
consumption, partly into his constant capital. (Wages are 
here assumed to be a given quantity.) 

The mass of capital which the laborer sets in motion, whose 
value he preserves by his labor and reproduces in his product, 
is quite different from the value which he adds to it. If the 
mass of the capital equals 1,000, and the added labor 100, 
then the reproduced capital equals 1,100. If the mass equals 
100 and the added labor 20, then the reproduced capital 
equals 120. In the first case the rate of profit is 10%, in 
the second 20%. And yet more can be accumulated out of 



288 Capitalist Production. 

100 than out of 20. And thus the river of capital rolls on 
(aside from its depreciation by an increase of the productive 
power), or its accumulation does, not in proportion to the 
level of the rate of profit, but in proportion to the impetus 
which it already has. A high rate of profit, so far as it is 
based on a high rate of surplus-value, is possible when the 
working day is very long, although labor may not be highly 
productive. This is possible, because the wants of the la- 
borers are very insignificant, and therefore the average wages 
very low, although labor itself unproductive. The low level 
of wages will have for its counterpart a lack of energy among 
laborers. Capital then accumulates slowly, in spite of the 
high rate of profits. Population stagnates and the working 
time, which the product costs, is long, while the wages paid 
to the laborer are small. 

The rate of profit sinks, not because the laborer is less ex- 
ploited, but because less labor is employed in proportion to 
the employed capital in general. 

If a falling rate of profit goes hand in hand with an increase 
in the mass of profits, as we have shown, then a larger por- 
tion of the annual product of labor is ajDpropriated by the 
caj)italist under the name of capital (as a substitute for con- 
sumed capital) and a relatively smaller portion under the 
name of profit. Hence the phantastic idea of the priest Chal- 
mers, that the capitalists pocket so much more profits, the 
smaller the quantity of the annual product expended by them 
as capital. The state church then comes to their assistance 
in order to help them to consume the greater part of the 
surplus-product instead of capitalising it. The preacher con- 
founds cause with effect. By the way, the mass of profits in- 
creases also at a small rate with the magnitude of the invested 
capital. However, this requires at the same time a concentra- 
tion of capital, since the conditions of production then de- 
mand the employment of capital on a large scale. It like- 
wise requires its centralisation, that is, a devouring of small 
capitalists by the great capitalists and decapitalisation of the 
former. It is but a second instance of separating the pro- 
ducers from their requirements of production, for these small 



Internal Contradictions. 289 

capitalists still belong to tlie producers, since their own labor 
plays a role in this problem. Generally speaking, the labor 
of a capitalist stands in an inverse proportion to the size of 
his capital, that is, to his degree as a capitalist. This divorce 
of requirements of production here, and producers there, is 
inseparable from the nature of capital. It begins with the 
inauguration of primitive accumulation. (Vol. I, chap. 
XXVI), becomes a permanent process in the accumulation and 
concentration of capital, and expresses itself finally as a cen- 
tralisation of already existing capitals in a few hands and a 
decapitalisation of many (a change in the method of expro- 
priation). This process would soon bring about the collapse 
of capitalist production, if it were not for counteracting tend- 
encies, which continually have a decentralising effect by the 
side of the centripetal ones. 

II. Conflict hetween the Expansion of Production and the 
Creation of Values. 

The development of the productive power of labor shows 
itself in two ways: First, in the magnitude of the already 
produced productive powers, in tlie volume of values and 
masses of requirements of production, under which new pro- 
duction is carried on, and in the absolute magnitude of the 
already accumulated productive capital: secondly, in the rela- 
tive smallness of the capital invested in wages as compared to 
the total capital, that is, in the relatively small quantity of 
living labor required for the reproduction and self-expansion 
of a given capital as compared to mass production. It is at 
the same time conditioned on the concentration of capital. 

So far as the employed labor-power is concerned, the de- 
velopment of the productive powers shows itself once more in 
two ways: First, in the increase of surplus-labor, that is, 
the reduction of the necessary labor time required for the re- 
production of labor-power; secondly, in the decrease of the 
quantity of labor-power (the number of laborers) employed 
in general for the purpose of setting in motion a given capital. 

Both movements do not only go hand in hand, but are mu- 
tually conditioned on one another. They are different phe- 



290 Capitalist Production. 

nomena, througli wliicli the same law expresses itself. How- 
ever, tliey affect the rate of jDrofit in opposite ways. The total 
mass of profits is equal to the total mass of surplus-values, 
the rate of profit = ^=^,,,^^^^^^^. Is^ow, surplus- 
value, as a total^ is determined first by its rate, secondly by 
the mass of labor simultaneously employed at this rate, or 
what amounts to the same, by the magnitude of the variable 
capital. One of these factors, the rate of surplus-value, rises 
in one direction, the other factor, the number of laborers, falls 
in the opposite direction (relatively or absolutely). To the 
extent that the development of the productive power reduces 
the paid portion of the employed labor, it raises the surplus- 
value by raising its rate ; but to the extent that it reduces the 
total mass of labor employed by a certain capital, it reduces the 
factor of numbers with which the rate of surplus-value is mul- 
tiplied in order to calculate its mass. Two laborers, each work- 
ing 12 hours daily, cannot produce the same mass of surplus- 
value as 24 laborers each working only 2 hours, even if they 
could live on air and did not have to work for themselves at all. 
In this res]3ect, then, the compensation of the reduction in the 
number of laborers by means of an intensification of exploita- 
tion has certain impassible limits. It may, for this reason, 
check the fall of the rate of profit, but cannot prevent it en- 
tirely. 

With the development of the capitalist mode of production, 
the rate of profit therefore falls, while its mass increases with 
the growing mass of the employed capital. Given the rate, 
the absolute increase in the mass of caj^ital depends on its 
existing magnitude. But on the other hand, if this magni- 
tude is given, the proportion of its growth, the rate of its 
increment, depends on the rate of profit. The increase in the 
productive power (which, we repeat, always goes hand in 
hand with a depreciation of the productive capital) cannot 
directly increase the value of the existing capital, unless it 
increases, by raising the rate of profit, that portion of the 
value of the annual product which is reconverted into capital. 
80 far as the productive power is concerned (since it has no 
direct bearing upon the value of the existing capital), it can 



Internal Contradictions. 291 

accomplisli this only bj raising the relative surplus-value, or 
reducing the value of the constant capital, so that those com- 
modities which enter either into the reproduction of labor- 
power or into the elements of constant capital are cheapened. 
Both of these things imply a depreciation of the existing cap- 
ital, and both of them go hand in hand with a relative re- 
duction of the variable as compared to the constant capital. 
Both things imply a fall in the rate of profit, and both of 
them check it. Furthermore, so far as an increased rate of 
profit causes a greater demand for labor, it tends to increase 
the working population and thus the material, whose exploita- 
tion gives to capital its real nature of capital. 

Indirectly, however, the development of the productive 
power of labor contributes to the increase of the value of the 
existing capital, by increasing the mass and variety of use- 
values, in which the same exchange value presents itself and 
which form the material substance, the objective elements, 
of capital, the material objects of which the constant capital 
is directly composed and the variable capital at least indi- 
rectly. With the same capital and the same labor more things 
are produced, which may be converted into capital, aside from 
their exchange value. Things which may serve for the ab- 
sorption of additional labor, and consequently of additional 
surplus-labor, and which therefore may J^ecome additional 
capital. The amount of labor, w^hich a certain capital may 
command, does not depend on its value, but on the mass of 
raw and auxiliary materials, of machinery and elements of 
fixed capital, of necessities of life, of which it is composed, 
whatever may be their value. As the mass of the employed 
labor, and thus of surplus-labor, increases, so does the value 
of the reproduced capital and the surplus-value newly added 

to it gTOW. 

These two elements playing their role in the process of ac- 
cumulation should not, however, be observed in their quiet ex- 
istence side by side, as Eicardo does. They imply a contra- 
diction, which expresses itself in antagonistic tendencies and 
phenomena. These antagonistic agencies oppose each other 
simultaneously. 



2g2 Capitalist Production. 

Together with the incentives for an actual increase of the 
laboring population, which originates in the augmentation of 
that portion of the total social product which serves as capital, 
there are the effects of other agencies, which create merely a 
relative over-population. 

Together with the fall of the rate of profit grows the mass 
of capitals, and hand in hand with it goes a depreciation of the 
existing capitals, which checks this fall and gives an acceler- 
ating push to the accumulation of capital-values. 

Together with the development of the productive power 
grows the higher composition of capital, the relative decrease 
of the variable as compared to the constant capital. 
• These different influences make themselves felt, now more 
side by side in space, now more successively in time. Peri- 
odically the conflict of antagonistic agencies seeks vent in 
crises. The crises are always but momentary and forcible 
solutions of the existing contradictions, violent eruptions, 
which restore the disturbed equilibrium for a while. 

The contradiction, generally speaking, consists in this that 
the capitalist mode of production has a tendency to develop 
the productive forces absolutely, regardless of value and of 
the surplus-value contained in it and regardless of the social 
conditions under which capitalist production takes place; 
while it has on tlae other hand for its aim the preservation of 
the value of the existing capital and its self-expansion to tlie 
highest limit (that is, an ever accelerated growth of this 
value). Its specific character is directed at the existing value 
of capital as a means of increasing this value to the utmost. 
The methods by which it aims to accomplish this comprise a 
fall of the rate of profit, a depreciation of the existing capi- 
tal, and a development of the productive forces of labor at 
the expense of the already created productive forces. 

The periodical depreciation of the existing capital, which 
is one of the immanent means of capitalist production by 
which the fall in the rate of profit is checked and the accu- 
mulation of capital-value through the formation of new capi- 
tal promoted, disturbs the existing conditions, within which 
the process of circulation and reproduction of capital takes 



Internal Contradictions. 293 

place, and is therefore accompanied by sudden stagnations 
and crises in the process of production. 

The relative decrease of variable capital as compared to the 
constant, which goes hand in hand with the development of 
the productive forces, gives an impulse to the growth of the 
laboring population, while it continually creates an artificial 
over-population. The accumulation of capital, so far as its 
value is concerned, is checked by the falling rate of profit, in 
order to hasten still more the accumulation of its use-value, 
and this, in its turn, adds new speed to the accumulation of 
its value. 

Capitalist production is continually engaged in the attempt 
to overcome these immanent barriers, but it overcomes them 
only by means which again place the same barriers in its 
way in a more formidable size. 

The real harrier of capitalist production is capital itself. It 
is the fact that capital and its self-expansion appear as the start- 
ing and closing point, as the motive and aim of production; 
that production is merely production for capital, and not vice 
versa, the means of production mere means for an ever ex- 
panding system of the life process for the benefit of the 
society of producers. The barriers, within which the preser- 
vation and self-expansion of the value of capital resting on 
the expropriation and pauperisation of the great mass of pro- 
ducers can alone move, these barriers come continually in 
collision with the methods of production, which capital must 
employ for its purposes, and which steer straight toward an 
unrestricted extension of production, toward production for 
its own self, toward an unconditional development of the 
productive forces of society. The means, this unconditional 
development of the productive forces of society, comes con- 
tinually into conflict with the limited end, the self -expansion 
of the existing capital. Thus, while the capitalist mode of 
production is one of the historical means by which the mate- 
rial forces of production are developed and the world-market 
required for them created, it is at the same time in continual 
conflict with this historical task and the conditions of social 
production corresponding to it. 



294 Capitalist Production. 

III. Surplus of Capital and Surplus of Population. 

With the fall of the rate of profit grows the lowest limit 
of capital required in the hands of the individual capitalist 
for the productive employment of labor, required both for the 
exploitation of labor and for bringing the consumed labor 
time within the limits of the labor time necessary for the 
production of the commodities, the limits of the average social 
labor time required for the production of the commodities. 
Simultaneously with it grows the concentration, because there 
comes a certain limit where large capital with a small rate 
of profit accumulates faster than small capital with a large 
rate of profit. This increasing concentration in its turn 
brings about a new fall in the rate of profit at a certain climax. 
The mass of the small divided capitals is thereby pushed into 
adventurous channels, speculation, fraudulent credit, fraud- 
ulent stocks, crises. The so-called plethora of capital refers 
always essentially to a plethora of that class of capital which 
finds no compensation in its mass for the fall in the rate 
of profit — and this applies always to the newly formed 
sprouts of capital — or to a plethora of capitals incapable of 
self-dependent action and placed at the disposal of the man- 
agers of large lines of industry in the form of credit. This 
plethora of capital proceeds from the same causes which call 
forth a relative over-population. It is therefore a phenome- 
non supplementing this last one, although they are found at 
opposite poles, unemployed capital on the one hand, and un- 
employed laboring population on the other. 

An overproduction of capital, not of individual commodi- 
ties, signifies therefore simply an over-accumulation of cap- 
ital — although the overproduction of capital always includes 
the overproduction of commodities. In order to understand 
what this over-accumulation is (its detailed analysis follows 
later), it is but necessary to assume it to be absolute. When 
would an overproduction of capital be absolute ? When would 
it be an overproduction which Avould not affect merely a few 
important lines of production, but which would be so abso- 
lute as to extend to every field of production ? 

There would be an absolute overproduction of capital as 



Internal Contradictions. 295 

soon as the additional capital for purposes of capitalist pro- 
duction would be equal to zero. The purpose of capitalist 
production is the self-expansion of capital, that is, the ap- 
propriation of surplus-labor, the production of surplus-value, 
of profit. As soon as capital would have grown to such a 
proportion compared with the laboring population, that neither 
the absolute labor time nor the relative surplus-labor time could 
be extended any further (this last named extension would 
be out of the question even in the mere case that the demand 
for labor would be very strong, so that there would be a tend- 
ency for wages to rise) ; as soon as a point is reached where 
the increased capital produces no larger, or even smaller, 
quantities of surplus-value than it did before its increase, 
there would be an absolute overproduction of capital. That 
is to say, the increased capital C -|- A C would not produce 
any more profit, or even less profit, than capital C before 
its expansion by A C. In both cases there would be a strong 
and sudden fall in the average rate of profit, but it would be 
due to a change in the composition of capital which would 
not be caused by the development of the productive forces, 
but by a rise in the money-value of the variable capital (on 
account of the increased wages) and the corresponding reduc- 
tion in the proportion of surplus-labor to necessary labor. 

In reality the matter would amount to this, that a portion 
of the capital would lie fallow completely or partially (be- 
cause it would first have to crowd some of the active capital 
out before it could take part in the process of self-expansion), 
while the active portion would produce values at a lower rate 
of profit, owing to the pressure of the unemployed or but 
partly employed capital. Matters would not be altered in 
this respect, if a part of the additional capital were to take 
the place of some old capital crowding this into the position 
of additional capital. We should always have on one side 
the sum of old capitals, on the other that of the additional 
capitals. The fall in the rate of profit would then be accom- 
panied by an absolute decrease in the mass of profits, since 
under the conditions assumed by us the mass of the employed 
labor-power could not be increased and the rate of surplus- 



296 Capitalist Production. 

value not raised, so that there could be no raising of the mass 
of surplus-value. And the reduced mass of profits would have 
to be calculated on an increased total capital. — But even as- 
suming that the employed capital were to continue producing 
value at the old rate, the mass of profits remaining the same, 
this mass would still be calculated on an increased total cap- 
ital, and this would likewise imply a fall in the rate of 
]3rofits. If a total capital of 1,000 yielded a profit of 100, 
and after its increase to 1,500 still yielded 100, then 1,000 
in the second case would yield only 66f. The self -expansion 
of the old capital would have been reduced absolutely. A 
capital of 1,000 would not yield any more under the new cir- 
cumstances than formerly a capital of 666f. 

It is evident that this actual depreciation of the old capital 
could not take place without a struggle, that the additional 
capital A C could not assume the functions of capital without 
an effort. The rate of profit would not fall on account of 
competition due to the overproduction of capital. The com- 
petitive struggle would rather begin, because the fall of the 
rate of profit and the overproduction of capital are caused 
by the same conditions. The capitalists who are actively en- 
gaged with their old capitals would keep as much of the new 
additional capitals as would be in their hands in a fallow 
state, in order to prevent a depreciation of their original cap- 
ital and a crowding of its space within the field of production. 
Or they would employ it for the purpose of loading, even at 
a momentary loss, the necessity of keeping additional capi- 
tal fallow upon the shoulders of new intruders and other com- 
petitors in general. 

That portion of A C which would be in new hands would 
seek to make room for itself at the expense of the old capital, 
and would accomplish this in part by forcing a portion of 
the old capital into a fallow state. The old capital would 
have to give up its place to the new and retire to the place 
of the completely or partially unemployed additional capital. 

Under all circumstances, a portion of the old capital would 
be compelled to lie fallow, to give up its capacity of capital 
and stop acting and producing value as such. The com- 



Internal Contradictions. 297 

petitive straggle would decide what part would have to go 
into this fallow state. So long -as everything goes well, com- 
petition effects a practical brotherhood of the capitalist class, 
as we have seen in the case of the average rate of profit, so 
that each shares in the common loot in proportion to the mag- 
nitude of his share of investment. * But as soon as it is no 
longer a question of sharing profits, but of sharing losses, 
every one tries to reduce his own share to a minimum and 
load as much as possible upon the shoulders of some other com- 
petitor. However, the class must inevitably lose. How much 
the individual capitalist must bear of the loss, to what extent 
he must share in it at all, is decided by power and craftiness, 
and competition then transforms itself into a fight of hostile 
brothers. The antagonism of the interests of the individual 
capitalists and those of the capitalist class as a whole then 
makes itself felt just as previously the identity of these in- 
terests impressed itself practically on competition. 

How would this conflict be settled and the " healthy " 
movement of capitalist production resumed under normal con- 
ditions ? The mode of settlement is already indicated by the 
mere statement of the conflict whose settlement is under dis- 
cussion. It implies the necessity of making unproductive, or 
even partially destroying, some capital, amounting either to 
the complete value of the additional capital C, or to a part- 
of it. But a graphic presentation of this conflict shows that 
the loss is not equally distributed over all the individual cap- 
itals, but according to the fortunes of the competitive struggle, 
which assigns the loss in very different proportions and in 
various shapes by grace of previously captured advantages or 
positions, so that one capital is rendered unproductive, an- 
other destroyed, a third but relatively injured or but momen- 
tarily depreciated, etc. 

But under all circumstances the equilibrium is restored by 
making more or less capital unproductive or destroying it. 
This would affect to some extent the material substance of cap- 
ital, that is, a part of the means of production, fixed and cir- 
culating capital, would not perform any service as capital ; a 
portion of the running establishments would then close down. 



298 Capitalist Production. 

Of course, time would corrode and depreciate all means of 
production (except land), but this particular stagnation would 
cause a far more serious destruction of means of production. 
However, the main effect in this case would be to suspend the 
functions of some means of production and prevent them for a 
shorter or longer time from serving as means of production. 

The principal work of destruction would show its most 
dire effects in a slaughtering of the values of capitals. That 
portion of the value of capital which exists only in the form 
of claims on future shares of surplus-value of profit, which 
consists in fact of creditor's notes on production in its various 
forms, would be immediately depreciated by the reduction of 
the receipts on which it is calculated. One portion of the 
gold and silver money is rendered unproductive, cannot serve 
as capital. One portion of the commodities on the market 
can complete its process of circulation and reproduction only 
by means of an immense contraction of its prices, which means 
a depreciation of the capital represented by it. In the same 
way the elements of fixed capital are more or less depreciated. 
Then there is the added complication that the process of re- 
production is based on definite assumptions as to prices, so 
that a general fall in prices checks and disturbs the process of 
reproduction. This interference and stagnation paralyses the 
function of money as a medium of payment, which is condi- 
tioned on the development of capital and the resulting price 
relations. The chain of payments due at certain times is 
broken in a hundred places, and the disaster is intensified by 
the collapse of the credit-system. Thus violent and acute crises 
are brought about, sudden and forcible depreciations, an ac- 
tual stagnation and collapse of the process of reproduction, and 
finally a real falling off in reproduction. 

At the same time still other agencies would have been at 
work. The stagnation of production would have laid off a 
part of the laboring class and thereby placed the employed part 
in a condition, in which they would have to submit to a re- 
duction of wages, even below the average. This operation has 
the same effect on capital as though the relative or absolute 
surplus-value had been increased at average wages. The time 



Internal Contradictions. 299 

of prosperity would have promoted marriages among the la- 
borers and reduced the decimation of the offspring. These cir- 
cumstances, while implying a real increase in population, do 
not signify an increase in the actual working population, but 
they nevertheless affect the relations of the laborers to capital 
in the same way as though the number of the actually working 
laborers had increased. On the other hand, the fall in prices 
and the competitive struggle would have given to every capi- 
talist an impulse to raise the individual value of his total prod- 
uct above its average value by means of new machines, new and 
improved working methods, new combinations, which means, 
to increase the productive power of a certain quantity of labor, 
to lower the proportion of the variable to the constant capital, 
and thereby to release some laborers, in short, to create an ar- 
tificial over-population. The depreciation of the elements of 
constant capital itself would be another factor tending to raise 
the rate of profit. The mass of the employed constant capital, 
compared to the variable, would have increased, but the value 
of this mass might have fallen. The present stagnation of 
production would have prepared an expansion of production 
later on, within capitalistic limits. 

And in this way the cycle would be run once more. One 
portion of the capital which had been depreciated by the stag- 
nation of its function would recover its old value. For the 
rest, the same vicious circle would be described once more under 
expanded conditions of production, in an expanded market, and 
with increased productive forces. 

However, even under the extreme conditions assumed by us 
this absolute overproduction of capital would not be an ab- 
solute overproduction in the sense that it would be an abso- 
lute overproduction of means of production. It would be an 
overproduction of means of production only to the extent that 
they serve as capHo.l, so that the increased value of its in- 
creased mass would also imply a utilisation for the production 
of more value. 

Yet it would be an overproduction, because capital would 
be unable to exploit labor to a degree required by the " healthy, 
normal " development of the process of capitalist production, 



300 Capitalist Production. 

a degree of exploitation, which would increase at least the 
mass of profit to the extent that the mass of the employed cap- 
ital would grow; which would therefore exclude any possi- 
bility of the rate of profit falling to the same extent that cap- 
ital grows, or of the rate of profits falling even more rapidly 
than capital grows. 

Overproduction of capital never signifies anything else but 
overproduction of means of production — means of produc- 
tion and necessities of life — Avhich may serve as capital, that 
is, serve for the exploitation of labor at a given degree of ex- 
ploitation; for a fall in the intensity of exploitation below a 
certain point calls forth disturbances and stagnations in the 
process of capitalist production, crises, destruction of capital. 
It is no contradiction that this overproduction of capital is 
accompanied by a more or less considerable relative over-pop- 
ulation. The same circumstances, which have increased the 
productive power of labor, augmented the mass of produced 
commodities, expanded the markets, accelerated the accumula- 
tion of capital both as concerns its mass and its value, and 
lowered the rate of profit, these same circumstances have also 
created a relative over-population, and continue to create it 
all the time, an over-population of laborers who are not em- 
ployed by the surplus-capital on account of the low degree of 
exploitation at which they might be employed, or at least on 
account of the low rate of profit, which they would yield with 
the given rate of exploitation. 

If capital is sent to foreign countries, it is not done, because 
there is absolutely no employment to be had for it at home. 
It is done, because it can be employed at a higher rate of profit 
in a foreign country. But such capital is absolute surplus- 
capital for the employed laboring population and for the 
home country in general. It exists as such together with the 
relative over-population, and this is an illustration of the way 
in which both of them exist side by side and are conditioned 
on one another. 

On the other hand, the fall in the rate of profit connected 
with accumulation necessarily creates a competitive struggle. 
The compensation of the fall in the rate of profit by a rise in 



Internal Contradictions. 301 

the mass of profit applies only to the total social capital and 
to the great capitalists who are firmly installed. The new 
additional capital, which enters upon its functions, does not 
enjoy any such compensating conditions. It must conquer 
them for itself, and so the fall in the rate of profit calls forth 
the competitive struggle among capitalists, not vice versa. 
This competitive struggle is indeed accompanied by a tran- 
sient rise in wages and a resulting further fall of the rate of 
profit for a short time. The same thing is seen in the over- 
production of commodities, the overstocking of markets. 
Since the aim of capital is not to minister to certain wants, 
but to produce profits, and since it accomplishes this purpose 
by methods which adapt the mass of production to the scale 
of production, not vice versa, confiict must continually en- 
sue between the limited conditions of consumption on a capi- 
talist basis and a production which forever tends to exceed 
its immanent barriers. Moreover, capital consists of commod- 
ities, and therefore the overproduction of capital implies an 
overproduction of commodities. Hence we meet with the pe- 
culiar phenomenon that the same economists, who deny the 
overproduction of commodities, admit that of capital. If it is 
said that there is no general overproduction, but that a dis- 
proportion grows up between various lines of production, then 
this is tantamount to saying that within capitalist production 
the proportionality of the individual lines of production is 
brought about through a continual process of disproportional- 
ity, that is, the interrelations of production as a whole enforce 
themselves as a blind law upon the agents of production in- 
stead of having brought the productive process under their 
common control as a law understood by the social mind. It 
amounts furthermore to demanding that countries, in which 
capitalist production is not yet developed, should consume and 
produce at the same rate as that adapted to countries with 
capitalist production. If it is said that overproduction is only 
relative, then the statement is correct ; but the entire mode of 
production is only a relative one, whose barriers are not ab- 
solute, but have absoluteness only in so far as it is capitalistic. 
Otherwise, how could there be a lack of demand for the very 



302 Capitalist Production. 

commodities which the mass of the people want, and how 
would it be possible that this demand must be sought in for- 
eign countries, in foreign markets, in order that the labor- 
ers at home might receive in payment the average amount 
of necessities of iif e ? This is possible only because in 
this specific capitalist interrelation the surplus-product as- 
sumes a form, in which its owner cannot offer it for con- 
sumption, unless it first reconverts itself into capital for 
him. Finally, if it is said that the capitalists would only 
have to exchange and consume those commodities among 
themselves, then the nature of the capitalist mode of pro- 
duction is forgotten^ it is forgotten, that the question is 
merely one of expanding the value of the capital, not of con- 
suming it. In short, all these objections to the obvious phe- 
nomena of overproduction (phenomena which do not pay any 
attention to these objections) amounts to this, that the bar- 
riers of capitalist production are not absolute barriers of pro- 
duction itself and therefore no barriers of this specific, capi- 
talistic, production. But the contradiction of this capitalist 
mode of production consists precisely in its tendency to an ab- 
solute development of productive forces, a development, which 
comes continually in conflict with the specific conditions of 
production in which capital moves and alone can move. 

It is not a fact that too many necessities of life are pro- 
duced in proportion to the existing population. The reverse 
is true. Not enough is produced to satisfy the wants of the 
great mass decently and humanely. 

It is not a fact that too many means of production are pro- 
duced to employ the able bodied portion of the population. 
The reverse is the case. In the first place, too large a portion 
of the population is produced consisting of people who are 
really not capable of working, who are dependent through 
force of circumstances on the exploitation of the labor of 
others, or compelled to perform certain kinds of labor which can 
be dignified with this name only under a miserable mode of 
production. In the second place, not enough means of pro- 
duction are produced to permit the employment of tlie entire 
able bodied population under the most productive conditions, 



, I lit cruel Contradictions. 303 

so that their absolute labor time would be shortened bj the 
mass and effectiveness of the constant capital employed during 
working hours. 

On the other hand, there is periodically a production of too 
many means of production and necessities of life to permit of 
their serving as means for the exploitation of the laborers at 
a certain rate of profit. Too many commodities are pro- 
duced to permit of a realisation of the value and surplus- 
value contained in tliem under the conditions of distribution 
and consumption peculiar to capitalist production, that is, too 
many to permit of the continuation of this process without ever 
recurring explosions. 

It is not a fact that too much wealth is produced. But it 
is true that there is periodical overproduction of wealth in 
its capitalistic and self-contradictory form. 

The barrier of the capitalist mode of production becomes \ 
apparent : . . ^ 

1 ) In the fact that the development of the productive power 
of labor creates in the falling rate of profit a law which turns 
into an antagonism of this mode of production at a certain 
point and requires for its defeat periodical crises. 

2) In the fact that the expansion or contraction of pro- 
duction is determined by the appropriation of unpaid labor, 
and by the proportion of this unpaid labor to materialised 
labor in general, or, to speak the language of the capitalists, 
is determined by profit and by the proportion of this profit 
to the employed capital, by a definite rate of profit, instead of 
being determined by the relations of prpduction to social wants 
to the wants of socially developed human beings. The capital- 
ist mode of production, for this reason, meets with barriers at a 
certain scale of production which would be inadequate under 
different conditions. It comes to a standstill at a point de- \ 
termined by the production and realisation of profit, not by 
the satisfaction of social needs. 

If the rate of profit falls, there follows on one hand an ex- 
ertion of capital, in order that the capitalist may be enabled 
to depress the individual value of his commodities beiow the 
social average level and thereby realise an extra profit at the 



304 Capitalist Production. 

prevailing market prices. On the other hand, there follows 
swindle and a general promotion of swindle by frenzied at- 
tempts at new methods of production, new investments of 
capital, new adventures, for the sake of securing some shred 
of extra profit, which shall be independent of the general aver- 
age and above it. 

The rate of profit, that is, the relative increment of capital, 
is above all important for all new offshoots of capital seeking 
an independent location. And as soon as the formation of 
capital were to fall into the hands of a few established great 
capitals, which are compensated by the mass of profits for 
the loss through a fall in the rate of profits, the vital fire of 
production would be extinguished. It would fall into a dor- 
mant state. The rate of profit is the compelling power of 
capitalist production, and only such things are produced as 
yield a profit. Hence the fright of the English economists 
over the decline of the rate of profit. That the bare possi- 
bility of such a thing should worry Ricardo, shows his pro- 
found understanding of the conditions of capitalist produc- 
tion. The reproach moved against him, that he has an eye 
only to the development of the productive forces regardless of 
" human beings," regardless of the sacrifices in human beings 
and capital values incurred, strikes precisely his strong point. 
The development of the productive forces of social labor is 
the historical task and privilege of capital. It is precisely 
in this way that it unconsciously creates the material require- 
ments of a higher mode of production. What worries Ri- 
cardo is the fact that the rate of profit, the stimulating prin- 
ciple of capitalist production, the fundamental premise and 
driving force of accumulation, should be endangered by the 
development of production itself. And the quantitative pro- 
portion means everything here. There is indeed something 
deeper than this hidden at this point, which he vaguely feels. 
It is here demonstrated in a purely economic way, that is, 
from a bourgeois point of view, within the confines of capi- 
talist understanding, from the standpoint of capitalist produc- 
tion itself, that it has a barrier, that it is relative, that it 
is not an absolute, but only a historical mode of production 



Internal Contradictions. 305 

corresponding to a definite and limited epoch in the develop- 
ment of the material conditions of production. 

IV. Supijlementary Remarhs. 

Seeing that the development of the productive power of 
labor proceeds very disproportionately in the various lines of 
industry, not only in degree, but also in at times in oppo- 
site directions, it follows that the mass of the average profit 
(= surplus-value)' must be considerably below that level, 
which one would naturally assume according to the develop- 
ment of the productive forces in the most advanced lines of 
industry. The fact that the development of the productive 
forces in different lines of industry proceeds in considerably 
different rates, or even in opposite directions, is not due merely 
to the anarchy of competition and the peculiarity of the bour- 
geois mode of production. The productivity of labor is also 
conditioned on natural premises, which frequently become less 
productive to the extent that productivity, so far as it de- 
pends on social conditions, increases. This leads to opposite 
movements in these different spheres, progress here, retrogres- 
sion there. Consider, for instance, the mere influence of the 
seasons, on which the greater part of the raw materials de- 
pends for its mass, the exhaustion of forests, coal and iron 
mines, etc. 

While the circulating part of constant capital, such as raw 
material, etc., continually increases in mass to the extent 
that the productivity of labor growls, it is not so with the fixed 
capital, such as buildings, machinery, apparatus for lighting, 
heating, etc. Although a machine becomes absolutely dearer 
with the growth of its bodily mass, it becomes relatively 
cheaper. If five laborers produce ten times as many com- 
modities as formerly, this does not increase the outlay for 
fixed capital tenfold ; although the value of this part of the 
constant capital increases with the development of the produc- 
tive forces, it does not increase by any means in the same 
proportion with them. We have frequently pointed out the 
difference in the proportions of the constant to the variable 
capital, as it expresses itself in the fall of the rate of profit, 



^ 



06 Capitalist Production. 



and the difference in the same proportions as expressed witli 
the development of the productivity of labor with reference 
to the individual commodity and its price. 

[The value of a commodity is determined by the total labor- 
time, whether past or living, incorporated in it. The increase 
in the productivity of labor consists precisely in this that the 
share of the living labor is reduced while that of the past 
labor is increased, but in such a way that the total quantity 
of labor incorporated in that commodity declines, so that the 
living labor decreases more than the past labor increases. The 
past labor — the constant part of capital — materialised in 
the value of a certain commodity consists partly of wear and 
tear of fixed, partly of circulating constant capital entirely 
consumed by that commodity, such as raw and auxiliary ma- 
terials. That portion of value which comes from raw and aux- 
iliary materials must decrease with the productivity of labor, 
because this productivity seeks expression through these mate- 
rials by reducing their value. On the other hand, it is precisely 
characteristic of the rising productivity of labor, that the fixed 
part of the constant capital is strongly augmented and with 
it that portion of value which is transferred by wear and tear 
to the commodities. In order that a new method of produc- 
tion may turn out to be a real increase in productivity, it must 
transfer in wear and tear a smaller portion of the value of 
fixed capital than is deducted from it through a saving of 
living labor, in short, it must reduce the value of the com- 
modity. It must do so as a matter of course, even if an ad- 
ditional value is transferred to the commodity through an in- 
crease in the quantity or value of raw and auxiliary materials, 
as may sometimes happen. All additions of value must be 
more than compensated by the reduction in value resulting 
from a decrease in living labor. 

This reduction of the total quantity of labor incorporated 
in a certain commodity seems to be the essential mark of an 
increase in the productive power of labor, no matter under 
what sort of social conditions production is carried on. 
There is no doubt that the productivity of labor would be 
measured by this standard in a society, in which the pro- 



Internal Contradictions. 307 

ducers would regulate their production according to a pre- 
conceived plan, or even under a simple production of com- 
modities. But how is this under capitalist production ? 

Take it, for instance, that a certain line of capitalist indus- 
try produces an average normal commodity of its sphere under 
the following conditions: The wear and tear of fixed capital 
amounts to -J shilling per piece; raw and auxiliary materials 
are transferred into it at the rate of 17^ shillings per piece ; 
in wages, 2 shillings, and surplus-value 2 shillings, the rate 
of surplus-value being 100%. Total value 22 shillings. We 
assume for the sake of simplicity that the capital in this line 
of production has the composition of the average social capital, 
so that the price of production of the commodities is identical 
with the value and the profit of the capitalist with the created 
surplus-value. In that case the cost-price of the commodity 
is ^ -}- 17^ -j- 2 = 20 sh., the average rate of profit -^ = 
10%, and the price of production of one individual commod- 
ity 22 sh., equal to its value. 

!N^ow let us assume that a machine is invented, which re- 
duces the living labor required for each individual commodity 
by one-half, but at the same time trebles that portion of the 
commodity's value which is due to the wear and tear of fixed 
capital. In that case, the calculation is modified in this way : 
Wear and tear 1-| sh., raw and auxiliary materials the same 
as before, 17^ sh., wages 1 sh., surplus-value 1 sh., together 
21 sh. The commodity has then fallen 1 sh. in value: The 
new machine has certainly increased the productivity of labor, 
From the point of view of the capitalist, the matter has now 
the following aspect : His cost-price is now 1\ sh. for wear, 
17^ sh. for raw and auxiliary materials, 1 sh. for wages, total 
20 sh., as before. Since the rate of profit is not at once al- 
tered by the new machine, he will receive 10% more than his 
cost-price, that is, 2 sh. The price of production, then, re- 
mains unaltered at 22 sh., as before, but it is 1 sh. above 
the value of these commodities. So far as a society produc- 
ing under capitalist conditions is concerned, the commodity 
has not become any cheaper, the new machine signifies no im- 
provement. The capitalist is therefore not interested in the 



3o8 Capitalist Production. 

introduction of this new machine. And since its introduction 
would make his present and not yet worn-out machinery sim- 
ply worthless, would make old iron of it, would mean a posi- 
tive loss for him, he takes good care not to commit such a 
Utopian mistake. 

The law of increased productive power, then, does not ap- 
ply absolutely to capital. " So far as capital is concerned, the 
productive power is not increased by the enhancement of pro- 
ductive labor in general, but only by saving more in the unpaid 
portion of living labor than is expended in past labor, as we 
have already indicated in volume I, chapter XV, 2. Here 
the capitalist mode of production falls into another contra- 
diction. Its historical mission is the ruthless development in 
geometrical progression, of the productivity of human labor. 
It becomes disloyal to its mission, whenever it puts a check 
upon the development of productivity, as it does here. Thus 
it demonstrates once again that it is becoming weak with 
age and more and more outliving its usefulness. ]^''^ 

Under competition, the increase in the minimum of capital 
required for the successful operation of an independent in- 
dustrial establishment in keeping with the increase in pro- 
ductivity assumes the following aspect: As soon as the new 
and more expensive equipment has become universally estab- 
lished, smaller capitals are henceforth excluded from these 
enterprises. Smaller capitals can carry on an independent 
activity in such lines only during the incipient stage of me- 
chanical inventions. On the other hand, very large enter- 
prises, such as railroads, with an extraordinarily high rela- 
tive proportion of constant capital, do not yield any average 
rate of profit, but only a portion of it, interest. Otherwise 
the rate of profit would fall still lower. At the same time, 
this offers direct employment to large aggregations of capital 
in the form of stocks. 

An increase of capital, or accumulation of capital, does not 
imply a fall in the rate of profit, unless this growth is accom- 
panied by the aforementioned alterations in the proportions 

" The foregoing is placed between brackets, because it passes in some points 
beyond the scope of the original material, which I found in a note of the original 
manuscript, a revision of which I undertook. 



Internal Contradictions. 309 

of the organic constituents of capital. Now it so happens that 
in spite of the continual and daily revolutions in the mode of 
-production, now this, now that, greater or smaller portion of 
the total capital continues for certain periods to accumulate 
on the hasis of a given average proportion of those constituents, 
so that its growth does not imply any organic change, and con- 
sequently no fall in the rate of profit. This continual ex- 
pansion of capital, and consequently expansion of production 
on the basis of the old method of production, which proceeds 
quietly while the new methods are already developing by its 
side, is another reason, why the rate of profit does not decrease 
in the same degree in which the total capital of society grows. 

The increase of the absolute number of laborers, in spite of 
the relative decrease of the variable as compared to the con- 
stant capital, does not take place in all lines of production, and 
not uniformly in those in which it does proceed. In agricul- 
ture, the decrease of the element of living labor may be ab- 
solute. 

By the way, it is but a requirement of the capitalist mode 
of production that the number of wage workers should increase 
absolutely, in spite of its relative decrease. Under this mode, 
labor-powers become superfluous as soon as it is no longer com- 
pelled to employ them for 12 to 15 hours per day. A develop- 
ment of the productive forces which would diminish the ab- 
solute number of laborers, that is, which would enable the en- 
tire nation to accomplish its total production in a shorter 
time, would cause a revolution, because it would put the ma- 
jority of the population upon the shelf. In this the specific 
barrier of capitalist production shows itself once more, prov- 
ing that capitalist production is not an absolute form for the 
development of the productive powers and creation of wealth, 
but rather comes in collision with this development at a cer- 
tain point. This collision expresses itself partly through pe- 
riodical crises, which arise from the circumstance that now 
this, now that, portion of the laboring population is rendered 
superfluous in its old mode of employment. The barrier of 
capitalist production is the superfluous time of the laborers. 
The absolute spare time gained by society does not concern 



310 Capitalist Production. 

Capitalism. The development of the productive powers con- 
cerns it only to the extent that it increases the surplus labor 
time of the working class, not to the extent that it decreases 
the labor time for material production in general. Thus cap- 
italist production moves in contradictions. 

We have seen that the growing accumulation of capital im- 
plies its growing concentration. Thus the power of capital, 
the personification of the conditions of social production in 
the capitalist, grows over the heads of the real producers. Cap- 
ital shows itself more and more as a social power, whose agent 
the capitalist is, and which stands no longer in any possible 
relation to the things which the labor of any single individual 
can create. Capital becomes a strange, independent, social 
power, which stands opposed to society as a thing, and as the 
power of capitalists by means of this thing. The contradic- 
tion between capital as a general social power and as a power 
of private capitalists over the social conditions of production 
develops into an ever more irreconcilable clash, which im- 
plies the dissolution of these relations and the elaboration of 
the conditions of production into universal, common, social 
conditions. This elaboration is performed by the development 
of the productive powers under capitalist production, and by 
the course which this development pursues. 



No capitalist voluntarily introduces a new method of pro- 
duction, no matter how much more productive it may be, and 
how much it may increase the rate of surplus-value, so long as 
it reduces the rate of profit. But every new method of produc- 
tion of this sort cheapens the commodities. Hence the capi- 
talist sells them originally above their prices of production, 
or, perhaps, above their value. He pockets the difference, 
which exists between these prices of production and the mar- 
ket-prices of the other commodities produced at higher prices 
of production. He can do this, because the average labor time 
required socially for the production of these other commodities 
is higher than the labor time required under the new methods 
of production. His method of production is above the social 
average. But competition generalises it and subjects it to the 



Internal Contradictions. 311 

general law. Then follows a fall in the rate of profit — per- 
haps first in this sphere of production, which gradually brings 
the others to its level — • which is, therefore, wholly independ- 
ent of the will of the capitalist 

It must be noted here, that this same law rules also those 
spheres of production, whose product passes neither directly 
nor indirectly into the consumption of the laborers or into the 
conditions under which their necessities are produced; it ap- 
plies, therefore, also to those spheres of production, in which 
no cheapening of commodities can increase the relative sur- 
plus-value or cheapen labor-power. (It is true that a cheap- 
ening of constant capital may increase the rat«8 of profit in all 
these lines while the exploitation of the laborer remains the 
same.) As soon as the new'mode of production begins to ex- 
pand, and thereby to furnish the tangible proof that these com- 
modities can actually be produced more cheaply, the capitalists 
working under the old methods of production must sell their 
product below their full prices of production, because the value 
of these commodities has fallen, because the labor time re- 
quired by these capitalists for the production of these com- 
modities is longer than the social average. In one word — 
this appears as the effect of competition — these capitalists 
are compelled to introduce the new method of production, 
under which the proportion of the variable to the constant 
capital has been reduced. 

All circumstances, which bring about the cheapening of 
commodities by the employment of improved machinery 
amount in the last analysis to a reduction of the quantity of 
labor absorbed by the individual commodities ; in the ^second 
place, to a reduction of the wear and tear portion of machinery 
transferred to the value of the individual commodity. To the 
extent that the wear and tear of machinery is less rapid, it is 
distributed over more commodities and displaces more living 
labor during its period of reproduction. In both cases the 
quantity and value of the fixed constant capital are increased 
over those of the variable capital. 

" All other things being equal, the power of a nation to 
save from its profits varies with the rate of profits, is gTcat 



312 Capitalist Production. 

v.'lien tliey are high, less, ^Yhen low ; but as the rate of profit 
declines, all other things do not remain equal. ... A 
low rate of profit is ordinarily accompanied by a rapid rate of 
accumulation, relatively to the numbers of the people, as in 
England ... a high rate of profit by a slower rate of 
accumulation, relatively to the numbers of the people." Ex- 
amples: Poland, Russia, India, etc. (Kichard Jones, An 
Introductory Lecture on Political Economy, London, 1833, p. 
SOff.) Jones emphasises correctly that in spite of the falling 
rate of profit the inducements and faculties to accumulate are 
■ augmented ; first, on account of the growing relative overpop- 
ulation ; secondly, because the growing productivity of labor is 
accompanied by an increase in the mass of use-values produced 
by the same exchange value, that is, an increase in the mate- 
rial elements of capital, thirdly, because the lines of produc- 
tion become more varied; fourthly, because the credit system, 
stock companies, etc., are developed, and with them the facility 
of converting money into capital without becoming an indus- 
trial capitalist; fifthly, because the wants and the greed for 
wealth increase; sixthly, because the mass of investments in 
fixed capital grows ; etc. 



The following three principal facts of capitalist produc- 
tion must be kept in mind : 

1) Concentration of means of production in a few hands, 
whereby they cease to appear as the property of the immediate 
laborers and transform themselves into social powers of pro- 
duction. It is true, they first become the private property of 
capitalists. These are the trustees of bourgeois society, but 
they pocket the proceeds of their trusteeship. 

2) Organisation of labor itself into social labor, by social 
co-operation, division of labor, and combination of labor with 
natural sciences. 

In both directions, the capitalist mode of production 
abolishes private property and private labor, even though it 
does so in contradictory forms. 

3) Creation of the world market. 

The stupendous productive power developing under the cap- 



Internal Contradictions. 313 

italist mode of production relatively to population, and the 
increase, though not in the same proportion, of capital values 
(not their material substance), which grow much more rapidly 
than the population, contradict the basis, which, compared to 
the expanding wealth, is ever narrowing and for which this 
immense productive power works, and the conditions, under 
which capital augments its value. This is the cause of crises. 



PAET IV. 

TEAlS^SFOEMATIOl^ OF COMMODITY-CAPITAL 

AND MONEY-CAPITAL INTO COMMEKCIAL 

CAPITAL AND FINANCIAL CAPITAL (MEE- 

CHANT'S CAPITAL). 



CHAPTEE XVI. 

COMMERCIAL CAPITAL. 

Merchant's capital, or trading capital, consists of two sub- 
divisions, namely commercial capital and financial capital, 
which we shall now proceed to define more in detail, so far as 
is necessary for the analysis of capital in its innermost struc- 
ture. This is so much the more needed, as modern political 
economy, even in its best representatives, indiscriminately 
mixes trading capital with industrial capital and wholly over- 
looks the characteristic peculiarities of the former. 

The movements of commodity-capital have been analysed in 
volume II. The total capital of society exists always in part 
in commodities on the market about to be converted into 
money, and this' part is naturally made up of ever changing 
elements and is continually changing in quantity. Another 
part exists as money on the market, ready to be converted into 
commodities. These portions of the total capital are per- 
petually passing through these metamorphoses. To the ex- 
tent that this function of cajDital in the process of circulation 
becomes a special function of independent capital and becomes 
an established service assigned by division of labor to some 
particular species of capitalists, the commodity-capital becomes 
commercial or financial capital. 

314 



Commercial Capital. 315 

In volume II, chapter VI, under the liead of cost of cir- 
culation, 2 and 3, we have explained to what extent the trans- 
portation industry, the storage and distribution of commodi- 
ties in a distributable form, may be regarded as processes of 
production continuing within the process of circulation. 
These incidents in the circulation of commodity-capital are 
sometimes confounded with the peculiar functions of commer- 
cial or financial capital. It is true that the peculiar functions 
of these last-named forms of capital are sometimes practically 
combined with those incidental ones, but with the advancing 
development of social division of labor the functions of mer- 
chant's capital evolve into a distinct type and are separated 
from those real functions connected with those incidents in 
circulation. For our present purpose, which is to define the 
specific difference of this special form of capital, we must 
leave aside those other functions as irrelevant. So far as 
capital employed only in the process of circulation, such as 
commercial capital, combines at times those other functions 
with its specific ones, it does not appear in its typical form. 
We do not get its pure type, until we strip it of all incidental 
functions. 

We have seen that the existence of capital in the shape of 
commodity-capital and the metamorphoses through which it 
passes within the sphere of circulation in its capacity as com- 
modity-capital on the market — a series of metamorphoses ex- 
pressed by buying and selling, conversion of commodity-capi- 
titl into money-capital and money-capital into commodity- 
capital — form a phase in the process of reproduction of in- 
dustrial capital, that is, a phase in its process of production as 
a whole. But we have also seen at the same time that it is 
distinguished in its function as capital of circulation from its 
function as productive capital. These are two different and 
separate forms of existence of the same capital. One portion 
of the total social capital is continually on the market in the 
form of capital of circulation, passing through those meta- 
morphoses. For each individual capital, however, its exist- 
ence as commodity-capital, and its metamorphoses in this 
form, represent merely ever vanishing and ever renewed points 



3i6 Capitalist Production. 

of transition, stages of transition in the continuity of its proc- 
ess of production. And the elements of commodity-capital 
on the market vary continually, being perpetually withdrawn 
from the market and just as perpetually returned to it as 
new products of the process of production. 

Commercial capital is nothing else but a changed form of 
a portion of this capital of circulation, which exists contin- 
ually on the market in the process of its metamorphoses within 
the sphere of circulation. We say explicitly, a portion, be- 
cause a portion of the selling and buying of commodities takes 
place between the industrial capitalists themselves. We leave 
this portion entirely out of consideration in this analysis, be- 
cause it contributes nothing to the definition of the concept, 
or to the understanding of tlie specific nature, of merchant's 
capital. Moreover, it has been exhaustively treated in vol- 
ume II. 

The dealer in commodities, as a capitalist, appears first on 
the market as the representative of a certain sum of money, 
which he advances in his capacity as a capitalist. He de- 
sires to transform this sum of money from its original value 
X into X -J- &x, that is, the original sum plus his profit. But 
it is evident that his capital must first enter the market in the 
shape of money, not only on account of his capacity as a capi- 
talist in general, but also as a trader in commodities in par- 
ticular. For he does not produce any commodities. He 
merely trades in them, he acts as middleman in their move- 
ments, and in order to be able to trade in them, he must first 
buy them, must be the owner of money-capital. 

Take it that a trader in commodities owns 3,000 p.st., which 
he invests as a trading capital. He buys with these 3,000 
p.st., say, 30,000 yards of linen from some linen manufac- 
turer, at 2 sh. per yard. Then he sells his 30,000 yards. If 
the annual average rate of profit is 10%, and if he makes a 
profit of 10% after deducting all incidental expenses, then 
he has converted his 3,000 p.st. into 3,300 p.st. at the end of 
one year. How he makes this profit is a question which we 
shall discuss later. At this place we merely intend to observe 
the form, which the movements of his capital take. He con- 



Commercial Capital. ' 317 

tlnually buys with his 3,000 p.st. linen and sells this linen ; he 
continually repeats this operation of buying for the purpose 
of selling, M — C — M', the simple form of capital confined 
entirely to the sphere of circulation and not interrupted by 
the intervention of the process of production, which lies out- 
side of its own movement and function. 

What, then, is the relation of this commercial capital to the 
commodity-capital representing a mere passing phase of in- 
dustrial capital ? So far as the linen manufacturer is con- 
cerned, he has realised the value of his linen with the money of 
the merchant. He has thereby completed the first phase in the 
metamorphosis of commodity-capital, its conversion into 
money, and he can now, provided that circumstances remain 
the same, proceed to reconvert this money into yarn, coal, 
wages, etc., or into means of existence, etc., for the consump- 
tion of his revenue. Leaving aside the spending of his rev- 
enue, he can continue his process of production. 

But while the sale of the linen, its metamorphosis into 
money, has taken place so far as its direct producer is con- 
cerned, it has not yet taken place so far as the linen itself is 
concerned. It is still on the market as a commodity-capital 
and awaits the completion of its first metamorphosis, awaits 
its sale. Nothing has happened to this linen but a change in 
the person of its owner. From the point of view of its own 
destination, of its position in the process, it is still a com- 
modity-capital, a saleable commodity ; only, it is now in the 
hands of the merchant instead of those of the manufacturer. 
The function of selling it, of serving as an agent in the first 
phase of its metamorphosis, has been transferred from the 
manufacturer to the merchant, has been converted into the 
particular business of the merchant, while it used to be a func- 
tion, which the producer had to perform after completing the 
process of its production. 

IsTow let us assume that the merchant would not succeed in 
disposing of those 30,000 yards of linen during the interval, 
which the linen manufacturer requires for the production of 
another lot of 30,000 yards and its marketing at 3,000 p.st. 
In that case, the merchant cannot buy this new lot, because 



3i8 Capitalist Production. 

he still has the old stock of 30,000 yards on hand, which he 
has not yet reconverted into money-capital. A stagnation 
then ensues, an interruption of reproduction. Of course, the 
linen manufacturer might have some additional money-capital 
in reserve, v^hich he might convert into productive capital in- 
dependently of the sale of those 30,000 yards of linen, in order 
to continue his process of production. But this assumption 
would not alter the matter. So far as the capital tied up in 
the 30,000 yards of linen is concerned, its process of repro- 
duction is and remains interrupted. Here we see indeed very 
clearly, that the operations of the merchant are really nothing 
but operations which must be performed under all circum- 
stances in order to convert the commodity-capital of the pro- 
ducer into money-capital, operations, which promote the func- 
tions of the commodity-capital in the process of circulation 
and reproduction. If a clerk of the producer were to attend 
exclusively to the sale, and also with the purchase, instead of 
an independent merchant, this connection would not be ob- 
scured for a moment. 

Commercial capital, then, is nothing but the commodity- 
capital of the producer, which has to pass through its trans- 
formation into money and to perform its function of commod- 
ity-capital on the market. The difference is only that this in- 
cidental function of the producer is now established as the ex- 
clusive business of a special kind of capitalists, of merchants, 
and becomes the independent business of a special investment 
of capital. 

This is furthermore shown in the specific form of the circu- 
lation of commercial capital. The merchant buys a commod- 
ity and then sells it : M — C — M'. In the simple circula- 
tion of commodities, or even in the circulation of commodities 
as it appears when a process of circulation of industrial cap- 
ital, C — M — C, circulation is promoted by the circum- 
stance that every piece of money changes hands twice. The 
linen manufacturer sells his commodity, the linen, converts 
it into money; the money of the buyer passes into his hands. 
With this money he buys yarn, coal, labor, etc., he spends the 
same money for the purpose of reconverting the value of linen 



Commercial Capital. 319 

into those commodities whicli form the elements of production 
of linen. The commodity which he buys is not the same kind 
of commodity which he sells. He has sold products and bought 
means of production. But it is different with the movements 
of commercial capital. With his 3,000 p.st., the linen mer- 
chant buys 30,000 yards of liTien. He sells the same linen 
for the purpose of recovering his money-capital (increased by 
profits) from the circulation. It is not the same pieces of 
mx3ney which here change places twice, but the same commodi- 
ties; the linen passes from the seller into the hands of the 
buyer, and from the hands of the buyer, who becomes a seller, 
into those of another buyer. It is sold twice, and it may be 
sold still oftener, if a series of other merchants intervenes. 
And it is precisely through this repeated sale, this twofold 
change of place of the same commodity, that the money ad- 
vanced by its first buyer for its purchase is recovered, its re- 
liax to him promoted. In the case of C — M — C the twofold 
change of place of the same money assists in the sale of one 
form of commodities and the purchase of another form. In 
the other case, M — C — M', the twofold change of place of 
the same commodity assists in the recovery of the advanced 
money from the circulation. This shows that the commodity 
has not been definitely sold, when it has passed from the hands 
of the producer into those of the. merchant, and that the latter 
merely continues the operation of selling — or promotes the 
functions of commodity-capital. But it shows at the same 
time that the operation C — M, which represents for the pro- 
ductive capitalist a mere function of his capital in its tran- 
sient form of commodity-capital, constitutes for the merchant 
the movement M — C — M'', that is, a specific utilisation of 
his advanced money-capital. A phase in the metamorphosis 
of commodities here shows itself, with reference to the mer- 
chant, in the form of M — C — M', that is, as the evolution 
of a separate kind of capital. 

The merchant sells his commodity, in this case the linen, 
definitely to the consumer, whether it be a productive con- 
sumer (for instance, a bleacher), or an individual consumer 
who uses the linen for his private needs. By this means the 



320 Capitalist Production. 

merchant recovers his advanced capital (with a profit), and he 
can then repeat his operation. If the money had served 
merely as a means of payment, when the merchant bought the 
linen from the manufacturer, for instance, if the merchant 
would not have had to make payment until after six weeks, 
he might he able to pay the manufacturer without even ad- 
vancing any money-capital of his own. But if he should not 
have sold the goods at the end of six weeks, he would have to 
advance his 3,000 p.st. on the date of the expiration, instead 
of advancing them on delivery of the linen. And if a fall 
in the market-price should have compelled him to sell below 
his purchase price, he would have to make good the loss out of 
his own capital. 

ISTow, what is it that lends to commercial capital the char- 
acter of an independently operating capital, while in the hands 
of the producer who does his own selling, it is obviously merely 
a special form of his capital in some particular phase of his 
process of reproduction, during its sojourn in the sphere of 
circulation ? 

1) It is, in the first place, the fact that the commodity- 
capital completes its definite conversion into money, its first 
metamorphosis, its function on the market in its capacity 
as commodity-capital, in the hands of another agent than the 
producer, and that this function of commodity-capital is pro- 
moted by the operations of the merchant, by his buying and 
selling, so that these transactions constitute themselves into 
a separate and independent business distinct from the other 
functions of industrial capital. Through it a portion of a 
function, which used to be performed in circulation as a spe- 
cial phase of the process of reproduction, is molded into the 
exclusive function of an independent agent of the circulation 
distinct from the producer. But this alone would not be 
enough to give to this special business the aspect of a function 
of an independent capital distinct from the industrial capital 
in process of self-expansion. In fact, it does not assume this 
aspect in cases where the trade in commodities is carried on by 
traveling agents, or by other direct agents of the industrial cap- 



Commercial Capital. 321 

italist. Another element is necessary to complete its special 
cliaracter. 

2) This second element is introduced bj tlie fact tliat the 
independent agent of circulation, the merchant, advances 
money-capital (his O'wn or borrowed) in this position. The 
transaction which amounts for the industrial capital in process 
of reproduction merely to C — M, to a conversion of commod- 
ity-capital into money-capital, to a mere sale, assumes for the 
merchant the form M — C — M', purchase and sale of the 
same commodity, and thus to a reflux, by means of a sale, of 
the money-capital expended in a purchase. 

It is always C — M, the conversion of commodity-capital 
into money, which assumes for the merchant the form of 
M — C — M, whenever he advances money for the purchase 
of commodities from their producers; it is always the first 
metamorphosis of commodity-capital, although the same trans- 
action may amount for a producer, or for industrial capital 
in process of reproduction, to M — C, a reconversion of money 
into commodities (means of production), the second phase of 
this metamorphosis. For the linen producer, the first meta- 
morphosis was C - — M, the conversion of commodity-capital 
into money-capital. This transaction amounts for the mer- 
chant to M — C, the conversion of his money-capital into 
commodity-capital, N'ow, if he sells this linen to a bleacher, it 
means M — C, conversion of money-capital into productive 
capital, for the bleacher, which represents the second meta- 
morphosis of his commodity-capital ; while it means C — M, 
the sale of the linen, for the merchant. Actually the com- 
modity-capital manufactured by the producer has now been 
definitely sold. This transaction, M — C — M, on the part 
of the merchant represents but the action of a middleman for 
the transaction C — M between two producers. Or let us as- 
sume, that the linen manufacturer buys with a portion of the 
value of the sold linen some yarn from a yarn dealer. This 
is M — C for him. For the merchant selling the yarn it is 
C — M, resale of the yarn. So far as the yarn itself is con- 
cerned, in its capacity of commodity-capital, it amounts to 



2,22 Capitalist Production. 

its definite sale, its transition from the sphere of circulation 
into the sphere of production by means of C — M, the definite 
conclusion of its first metamorphosis. Whether the merchant 
buys from the industrial capitalist, or sells to him, the cir- 
culation of his merchant's capital, M — C — M, always ex- 
presses but the same thing, which constitutes, from the point 
of view of the commodity-capital itself, a form of transition 
of the industrial capital in process of reproduction, C — M, 
the mere completion of its first metamorphosis. The M — C 
of the merchant's capital amounts only for the industrial cap- 
italist to C — M, but not for the commodity-capital produced 
by him. It is but the transfer of the commodity-capital from 
the hands of the industrial capitalist to those of the agent of 
circulation; Not until the merchant's capital closes the trans- 
action C — M does commodity-capital as such perform its 
final C — M. M — C — M amounts merely to two times 
C — M on the part of the same commodity-capital, two suc- 
cessive sales of it, which promote its last and final sale. 

It is evident, then, that commodity-capital assumes in com- 
mercial capital the form of an independent class of capital 
through the fact that the merchant advances money-capital. 
This money-capital serves its purpose as capital only by at- 
tending exclusively to the conversion of commodity-capital 
into money-capital, and it accomplishes this by the continual 
purchase and sale of commodities. This is its exclusive work. 
This promotion of the process of circulation of industrial cap- 
ital is the exclusive function of the money-capital with which 
the merchant operates. By means of this function he con- 
verts his money into money-capital, molds his M into M — 
C — M', and by the same process he converts commodity-cap- 
ital into commercial capital. 

So long and so far as commercial capital exists in the form 
of commodity-capital, from the point of view of the process of 
reproduction of the total social capital, it is obviously nothing 
else but that portion of the industrial capital in process of 
metamorphosis, which is still on the market and serves as 
commodity-capital. It is therefore only the money-capital 
advanced by the merchant, which is exclusively destined for 



Commercial Capital. 323 

purcliase and sale and for this reason never assumes any other 
form but that of commodity-capital and money-capital, always 
remaining confined to the sphere of circulation. It is only 
this money-capital which is now to be analysed with reference 
to the entire process 'o£ reproduction of capital. 

As soon as the producer, the linen manufacturer has sold 
his 30,000 yards of linen to the merchant for 3,000 p.st., he 
buys with the money so obtained the necessary means of 
production, and his capital re-enters the process of production ; 
his process of production continues without interruption. So 
far as he is concerned, the conversion of his commodity into 
money has been accomplished. But we have already seen that 
the linen itself has not yet closed its metamorphosis. It has 
not yet been definitely reconverted into money, it has not yet 
passed as a use-value into productive or individual con- 
sumj)tion. The linen merchant now represents on the market 
the same commodity-caj)ital, which the linen manufacturer rep- 
resented originally. So far as the manufacturer is concerned, 
the process of transformation has been abbreviated, but only 
to be continued through the hand of the merchant. 

If the linen producer had to wait, until his linen had 
really ceased being a commodity, until it had actually passed 
into the hands of its final purchaser for productive or indi- 
vidual consumption, his process of reproduction would be in- 
terrupted. Or, if he did not wish to interrupt it, he would 
have had to restrict his operations, to transform a smaller por- 
tion of the value of his linen into yarn, coal, labor, etc., in 
short, into the elements of productive capital, and to hold 
back a larger portion of it as a money-reserve. While one 
joortion of his capital would then be on the market in the 
shape of commodities, another would be enabled to continue 
in the process of production. In this way, one portion would 
return in the shape of money, while another would be going to 
market in the form of commodities. This division of capital 
of the individual producer is not abolished by the intervention 
of the merchant. But without it that portion of the capi- 
tal of circulation which is held as a money reserve would 
have to be always greater in proportion than the portion em- 



324 Capitalist Production. 

ployed as productive capital, and the scale of production would 
have to be restricted accordingly. Instead of that, the pro- 
ducer is nov^ enabled to employ a larger portion of his capital 
continually in the process of production itself, and a smaller 
portion as a money reserve. 

This is offset on the other hand by the fact that another 
portion of the social capital, in the shape of merchant's cap- 
ital, is held continually within the sphere of circulation. It 
is employed for no other purpose but that of buying and sell- 
ing. There seems then to have been no other change but that 
of the persons who hold this capital in their hands. 

If the merchant, instead of buying 3,000 p.st.'s worth of 
linen with the intention of selling it again, were to employ 
these 3,000 p.st. productively himself, then the productive 
capital of society would be increased. It is true, that the 
linen producer would then have to hold back a larger portion 
of his capital as a money reserve, and likewise the merchant 
who has now been transformed into an industrial capitalist. 
On the other hand, if the merchant were to remain a mer- 
chant the producer would save time in selling which he could 
employ for the supervision of the process of production, while 
the merchant would have to devote his whole time to selling. 

If the merchant's capital does not exceed its necessary pro- 
portions, it may be assumed 

1) that as a result of division of labor, the capital devoted 
exclusively to buying and selling (and this includes not only 
the money required for the purchase of commodities, but also 
the money which must be invested in the labor required for 
running the business of the merchant, in the constant capital 
of the merchant, store rooms, transportation, etc.) is smaller 
than it would be, if the industrial capitalist had to carry on 
the entire commercial part of his business himself; 

2) that the exclusive occupation of the merchant with this 
business enables the producer to convert his commodities more 
rapidly into money, and permits the commodity-capital itself 
to pass more quickly through its metamorphosis, than it would 
in the hands of the producer; 

3) that looking upon the entire merchant's capital in pro- 



Commercial Capital. 325 

portion to the industrial capital, one turn-over o-f the mer- 
chant's capital may represent not only the turn-overs of many 
capitals in one sphere of production, but the turn-overs of a 
numbers of capitals in different spheres of production. The 
first is the case when the linen merchant, after buying with 
his 3,000 p.st. the product of some linen producer, sells it 
before the same producer can bring another lot of the same 
quantity to market, so that the linen merchant has to buy the 
product of another, or several other, linen manufacturers. 
When he sells this, he promotes the turn-overs of different 
capitals in the same sphere of production. The second is the 
case, if the merchant, after selling his linen, buys, for in- 
stance, some silk. In this way he promotes the turn-overs of 
capitals in different spheres. 

In general it may be noted that the turn-over of the indus- 
trial capital is not limited merely by the time of circulation, 
but also by the time of production. The tum-over of mer- 
chant's capital, so far as it deals in one sort of commodities, 
is limited, not merely by the turn-over of one industrial cap- 
ital, but by the turn-overs of all industrial capitals in the 
same line of production. After the merchant has bought and 
sold the linen of one producer, he can buy and sell that of 
another, before the first can bring another lot of his product 
on the market. The same merchant's capital may, therefore, 
promote successively the different turn-overs of the industrial 
capitals invested in a certain line of production. Its turn- 
over is therefore not identified with the turn-overs of one sole 
industrial capital, but with the turn-overs of many, and it 
does not take the place of but one money reserve, which one 
single industrial capitalist would have to hold back. The 
turn-over of the merchant's capital in one sphere of produc- 
tion is naturally determined by the total production of that 
sphere. But it is not determined by the limits of production 
or the time of turn-over of any single capital of the same 
sphere, so far as its time of turn-over is determined by its time 
of production. For instance, let us assume that A supplies 
a commodity, which requires three months for its production. 
After the merchant has bought and sold it, say, in one month. 



326 Capitalist Production. 

he can buy and sell the same product of some other producer. 
Or, after he has sold, say, the corn of some farmer, he can 
buy with the same money that of another and another, etc. 
The turn-over of his capital is limited by the mass of corn, 
which he can buy successively in a certain time, for instance, 
in one year, while the capital of the farmer is limited in its 
turn-over, aside from the time of circulation, by the time of 
production, which lasts one year. 

However, the turn-over of the same merchant's capital may 
promote equally well the turn-overs of capitals in different 
lines of production. 

To the extent that the same merchant's capital serves in 
different turn-overs to transform different commodity-capitals 
successively into money, buying and selling them one after 
another, it performs in its capacity as money-capital the same 
function with regard to the commodity-capital, which money 
in general performs by means of its turn-overs within a cer- 
tain period with regard to commodities. 

The turn-over of merchant's capital is not identical with 
the turn-over or with one single reproduction of one industrial 
capital of the same size; it is rather equal to the sum of the 
turn-overs of a number of such capitals, either in the same, 
or in different spheres of production. The quicker mer- 
chant's capital is turned over, the smaller is that portion of 
the total money-capital, which serves as merchant's capital; 
the slower it is turned over, the larger is that same portion. 
The more undeveloped production is, the larger is the sum of 
merchant's capital as compared to the sum of the commodities 
thrown into circulation; but so much smaller is it absolutely, 
or compared with more developed conditions. Vice versa, the 
opposite holds good. In such undeveloped conditions the 
greater part of the strict money-capital is in the hands of tlifi 
merchants, whose wealth constitutes the money wealth as com- 
pared to the wealth of others. 

The velocity of the circulation of the money-capital ad- 
vanced by the merchant depends: 1) on the velocity vdth 
which the process of production is renewed and the different 



Commercial Capital. 327 

processes of production are linked together; 2) on the ve- 
locity of consumption. 

It is not necessary that merchant's capital should pass 
merely through the above mentioned turn-over, by first buy- 
ing commodities to its full amount and then selling them. 
The merchant may make both movements at the same time. 
His capital is then divided into two parts. One of them con- 
sists of commodity-capital, the other of money-capital. Here 
he buys and converts his money into commodities. There he 
sells and converts another part of his commodity-capital into 
money. On one side, his capital returns in the shape of 
money-capital, on the other it returns in the shape of commod- 
ity-capital. The larger the portion assuming one shape, the 
smaller the portion assuming another. This alternates and bal- 
ances itself. If money is not employed merely as a medium of 
circulation, but also as a means of payment and in conjunction 
with the credit system, w^hich develops along with it, then the 
money portion of the merchant's capital is reduced still more 
in proportion to the volume of the transactions promoted by the 
merchant's capital. If I buy 1,000 p.st.'s worth of wine on 
three months' credit, and sell all the wine for cash before the 
expiration of the three months, then I do not need to ad- 
vance one penny for these transactions. In this case it is 
quite obvious that the money-caiDital, which here serves as 
merchant's capital, is nothing but industrial capital itself in 
the shape of money-capital, in process of reflux to itself in 
the shape of money. (The fact that the producer who sold 
1,000 p.st.'s worth of wine on three months' credit may dis- 
count his note, which is a certificate of indebtedness of the 
buyer, at some bank does not alter the matter and has nothing 
to do with the capital of the merchant.) If market-prices 
should fall in the mean time by y^g-, the merchant would not 
only make no profit, but would recover only 2,700 p.st. in- 
stead of 3,000 p.st. He would then have to put up 300 p.st. 
out of his own pocket. These 300 p.st. serve merely as a re- 
serve for balancing the difference in price. But the same ap- 
plies to the producer. If he had sold at falling prices, he 



328 Capitalist Production. 

would likewise have lost 300 p.st., and could not begin pro- 
duction on tlie same scale without reserve capital. 

The linen merchant buys 3,000 p.st.'s worth of linen from 
the manufacturer. The manufacturer uses 2,000 p.st. of the 
3,000 to buy yarn. He buys this yarn from a yam dealer. 
The money with which the manufacturer pays the yarn 
dealer does not belong to the linen dealer. For the latter 
has received commodities to this amount. It is the money- 
form of the manufacturer's own capital. In the hands of the 
yarn dealer these 2,000 p.st. now appear as returned money- 
capital. But to what extent are they so, in what respect do 
they differ from the 2,000 p.st. representing the discarded 
money-form of the linen and the assumed money-form of the 
yarn ? If the yarn dealer bought on credit and sold for cash 
before the expiration of his time, then these 2,000 p.st. do not 
contain one penny of merchant's capital as distinguished from 
the money-form, which the industrial capital itself assumes 
in the course of its circulation. The commercial capital then, 
so far as it is not a mere form of industrial capital, held in 
the hands of the merchant in the shape of commodity-capital 
or money-capital, is nothing but that portion of the money- 
capital which belongs to the merchant himself and is circu- 
lated by the purchase and sale of commodities. This portion 
represents on a reduced scale that part of the capital advanced 
for production, which must always be in the hands of the in- 
dustrial as a money reserve, medium of purchase, and which 
would always have to circulate as money-capital. This por- 
tion, in a reduced scale, is now in the hands of capitalist mer- 
chants, and performs its functions only in the process of cir- 
culation. It is that portion of the total capital which, aside 
from expenditures of revenue, must continually circulate on 
the market as a medium of purchase in order to maintain the 
continuity of the process of reproduction. This portion is so 
much smaller in comparison to the total capital, the more rap- 
idly the process of reproduction takes place, and the more de- 
veloped the function of money as a means of payment, that 
is, of the credit-system.^^ 

^^ In order to be able to classify merchant's capital as a productive capital, 



Commercial Capital. 329 

Merchant's capital is simplj capital performing its func- 
tions in the sphere of circulation. The process of circulation 
is a phase of the total process of reproduction. But no value 
is produced in the process of circulation, and, therefore, no 
surplus-value. IsTothing takes place there but changes of form 
of the same mass of values. In fact, nothing occurs there but 
the metamorphosis of commodities, and this has nothing to do 
either with the creation or w^ith the transformation of values. 
If surplus-value is realised by the sale of the produced com- 
modities, it is only because that surplus-value already existed 
in them. In the second act, tlie reconversion of money-capital 
into commodities (elements of production), the buyer does 
not realise any surplus-value. He merely inaugurates the 
production of surplus-value by the exchange of his money for 
means of production and labor-power. So far as these meta- 
morphoses cost time of circulation — a time, during which 
capital is not producing at all, least of all surplus-value — 
they limit the creation of values, and the surplus-value will 
express itself through the rate of profit precisely in an inverse 
ratio to the duration of the time of circulation. Merchant's 
capital, therefore, does not create any value or surplus-value, 

Ramsay confounds it with the transportation industry and calls commerce " the 
transport of commodities from one place to another." {An Essay on the Distribu- 
tion of Wealth, p. 19.) The same mistake was committed by Verri in his Medi- 
tasionisulV Economia Politico, § 4, and by Say in his Traite d'Economie Politique, I, 
14, 15. In his Elements of Political Economy, J. P. Newman says: "In the existing 
economical arrangements of society, the very act which is performed by the 
merchant of standing between the producer and the consumer, advancing to the 
former capital and receiving products in return, and handing over these products 
to the latter, receiving back capital in return, is a transaction which both facilitates 
the economical process of the community, and adds value to the products in rela- 
tion to which it is performed (P. 174)." The producer and the consumer thus 
save time and money through the intervention of the merchant. ^This service 
requires an advance of capital and labor, and must be rewarded, " since it adds 
value to the products, for the same products, in the hands of the consumers, 
are worth more than in the hands of the producers." And so commerce appears 
to him, as it does to Mr. Say, as "strictly an act of production" (P. 175). This 
view of Newman is fundamentally wrong. The Mj^-value of a commodity is greater 
in the hands of the consumer than in those of the producer, because it is realised 
by the consumer. . For the use-value of a commodity does not serve its end until 
this commodity enters the sphere of consumption. So long as it is in the hands 
of the producer, it exists only potentially. But one does not pay twice for a 
commodity, one does not pay first for its exchange value, and then an extra price 
for its use-value. By paying for its exchange-value, I appropriate its use-value. 
And its exchange valv'.e is not in the least increased by transferring it from the 
hand of the producer or middleman to that of the consumer. 



330 Capitalist Production. 

at least not directly. If it contributes toward sbortening the 
time of circulation, it may help indirectly to increase the sur- 
plus-value produced by the industrial capitalists. To the ex- 
tent that it helps to expand the market and promotes the di- 
vision of labor between capitals, thereby enabling capital to 
work on a larger scale, its function enhances the productivity 
of the industrial capital and the accumulation of this capital. 
Inasmuch as it may shorten the time of circulation, it raises 
the ratio of surplus-value to the advanced capital, that is, the 
rate of profit. And to the extent that it confines a smaller 
portion of capital in the form of money-capital to the sphere 
of circulation, it increases that portion of capital which is en- 
gaged directly in production. 



CHAPTEE XVII. 



COMMERCIAL PEOFIT. 



We have seen in volume II, that the mere functions of capital 
-in the sphere of circulation — • the operations which the in- 
dustrial capitalist must perform, first, in order to realise the 
value of his commodities, and secondly, in order to reconvert 
this value into elements of production, operations which pro- 
mote the metamorphosis of the commodity-capital C — M — 
C, the acts of selling and buying — produce neither value 
nor surplus-value. It was rather seen that the time required 
for this purpose, objectively so far as the commodities, sub- 
jectively so far as the capitalist is concerned, creates barriers 
to the production of value and surplus-value. What is true 
of the metamorphosis of commodity-capital in general, is, as 
a matter of course, not in the least altered by the fact that a 
part of it may assume the shape of commercial capital, or 
that the operations, by w^hich the metamorphosis of commod- 
ity-capital is promoted, may become the particular business of 
a special class of capitalists, or the exclusive function of a por- 
tion of the money-capital. If selling and buying of com- 



Commercial Profit. 331 

modities — and that is what the metamorphosis of the com- 
modity-capital C — M — C amounts to — by the industrial 
capitalists themselves do not create any value or surplus-value, 
they will certainly not become creators of value by being trans- 
ferred from the industrial capitalists to other persons. Fur- 
thermore, if that portion of the total social capital, which must 
be continually on hand in order that the process of reproduc- 
tion, instead of being interrupted, may proceed continuously 
— ' if this money-capital does not create any value or surplus- 
value, then it cannot acquire the faculty to do so by being con- 
tinually thrown into circulation for the performance of its 
function by some other section of the capitalists than the in- 
dustrial capitalists. We have already indicated to what ex- 
tent merchant's capital may be indirectly productive, and we 
shall discuss this point more at length later on. 

Commercial capital, then — stripped of all heterogeneous 
functions, such as storing, expressing, transporting, distrib- 
uting, arranging, which may be connected with its true func- 
tion of buying in order to sell — creates neither value nor 
surplus-value, but promotes only their realisation and thereby 
the actual exchange of commodities, their transfer from one 
hand to the other, the social circulation of matter. Never- 
theless, since the circulating phase of industrial capital is as 
much a phase of the process of reproduction as production is, 
the capital performing its functions independently in the 
process of circulation must yield the average annual profit 
just as well as the capital performing its functions in the 
different lines of production. If merchant's capital were to 
yield a higher percentage of average profit than industrial 
capital, then a portion of the industrial capital would trans- 
form itself into merchant's capital. If this capital were to 
yield a lower average profit, then the opposite process would 
take place. A portion of the merchant's capital would trans- 
form itself into industrial capital ISTo species of capital en- 
joys a greater facility to change its occupation than merchant's 
capital 

Seeing that merchant's capital itself does not produce any 
surplus-value, it is evident that surplus-value appropriated by 



332 Capitalist Production. 

it in the sliape of average profit must be a portion of the sur- 
plus-value produced by the total productive capital. But the 
question is now: How does the merchant's capital manage 
to appropriate its share of the surplus-value or profit produced 
by the productive capital ? 

It is only outward semblance that commercial profit is a 
mere addition to, a nominal raise of the prices of com- 
modities above their value. 

It is evident that the merchant can draw his profit only out 
of the price of the commodities sold by him, more even, that 
this profit, which he makes by the sale of his commodities, 
must be equal to the difference between his purchase price and 
his selling price, equal to the excess of the latter over the 
former. 

It is possible, that additional costs (costs of circulation) 
may enter into the commodities after their purchase and be- 
fore their sale, and it is also possible, that this may not 
happen. If such costs should be added, it is evident that the 
excess of the selling price over the purchase price does not 
represent merely profit. In order to simplify the analysis, we 
assume first, that no such costs are added. 

Eor the industrial capitalist, the difference between the 
selling price and the purchase price of his commodities is 
equal to the difference between their price of production and 
their cost-price, or, looking upon the matter from the point of 
view of the total social capital, equal to the difference between 
the value of tlie commodities and their cost-price for the cap- 
italists, and this again resolves itself into the difference be- 
tween the total quantity of labor incorporated in them and the 
quantity of the paid labor incorporated in them. Before the 
commodities bought by the industrial capitalist are taken back 
to market as saleable commodities, they pass through the proc- 
ess of production, in which that portion of their price which 
shall be realised as profit must be created. But it is different 
with the trading merchant. The commodities are in his hands 
only so long as they are in the process of circulation. He 
merely continues their sale, the realisation of their price be- 
gun by the productive capitalist, and therefore he does not 



Commercial Profit. 333 

cause them to pass through any intermediate process, in which 
they can once more absorb new surplus-value. While the in- 
dustrial capitalist merely realises the previously produced 
surplus-value or profit by means of the circulation, the mer- 
chant must not only realise his profit in and by the circulation, 
but he must first make it there. This seems possible in no 
other way than that of selling the commodities bought by him 
•from the industrial capitalist at their prices of production, or, 
from the point of view of the total commodity-capital, their 
values, above their prices of production, by making a nominal 
addition to these prices, in other words by selling the total 
commodity-capital above its value and pocketing this excess of 
their nominal value over their real value. In short, it seems 
that he would be selling them for more than they are worth. 

This method of raising prices seems easy to gTasp. For in- 
stance, one yard of linen costs 2 sh. If I want to make 10% 
profit on my sales, I must add ^o- to the price, I must sell 
one yard of linen at 2 sh. 2f d. The difference between its 
actual price of production and its selling price is then 2f d. 
and this represents a profit of 10% on 2 sh. This amounts to 
my selling one yard of linen to the buyer at a price which is in 
reality the price of Iyq yard. Or, what amounts to the same, 
it is as though I sold to the buyer only yy of one yard for 2 
sh. and kept yt ^^^ myself. In fact, I might buy back -^ of 
one yard for 2f d., if the price of one yard is 2 sh. 2f d. This 
would be but a round-about way of sharing in the surplus- 
value and surplus-product by a nominal raise in the price of 
commodities. 

This is the realisation of commercial profit by raising the 
price of commodities, as it appears at first glance on the sur- 
face. And it is indeed a fact that this whole conception of 
the rise of profit from a nominal raise in the price of com- 
modities, or from their sale above their value, has its origin 
in the point of view of commercial capital. 

But on closer inspection it is quickly seen that this is a mere 
semblance, and that, assuming capitalist production to be the 
prevailing mode, commercial profit cannot be realised in this 
jnanner. (It is here always a question of averages, not of ex- 



334 Capitalist Production. 

ceptions.) Why do we assume that the dealer in commodi- 
ties can realise his profit of 10% on his commodities only by 
selling them 10% above their price of production? Because 
we had assumed that the producer of these commodities, the 
industrial capitalist (who impersonates The producer before 
the outside world as the personification of industrial capital), 
had sold them to the dealer at their prices of production. If 
the prices paid by the dealer for commodities are equal to their 
prices of production, so that the price of production, or in the 
last instance the value, represents the cost-price for the mer- 
chant, then the excess of the latter's selling price over his 
purchase price — and only this difference constitutes his profit 
— must indeed be an excess of their commercial price over 
their price of production, so that in the last analysis the mer- 
chant would be selling all commodities above their values. 
But why did we assume that the industrial capitalist sells his 
commodities to the merchant at their prices of production ? 
Or rather, what was the premise of that assumption ? It was 
that the commercial capital did not share in the formation of 
the average rate of profit (and as yet we are dealing with 
merchant's capital only in so far as it is commercial capital.) 
We started necessarily from this premise in the discussion of 
the average rate of profit, first, because the commercial capi- 
tal as such did not exist for us at that time ; and secondly, be- 
cause the average profit, and thus the average rate of profit, 
had to be first developed out of a mutual leveling of profits, or 
surplus-values, actually produced by the industrial capitals of 
the different spheres of production. But in the case of mer- 
chant's capital we are dealing with a capital which shares in 
the profit without participating in its production. Hence it 
now becomes necessary, to supplement our former presentation 
at this point. 

Let us suppose that the total industrial capital advanced 
for one year is Y20 c -|- 180 v = 900 (say million p.st.), and 
that s' = 100%. The product is then valued at 720 c + 
180 V + 180 s. Now let us call this product, the produced 
commodity-capital, C. Its value, or its price of production 
(both are identical for the total social commodity-capital), is 



Commercial Profit. 335 

then 1080, and the rate of profit for the total social capital of 
900 is 20%. These 20% constitute, according to our pre- 
vious analyses, the average rate of profit, since the surplus- 
value is not calculated in this instance on this or that capital 
of some particular composition, but on the average composi- 
tion of the total industrial capital. In short, C = 1,080, and 
the rate of profit =20%. JSTow let us further assume that 
aside from these 900 of industrial capital, there are invested 
100 of merchant's capital, which share in the profit, just as 
the industrial capital does, in proportion to their magnitude. 
According to our assumption, the total capital consists of 900 
industrial + ^00 commercial =, 1,000, so that the commercial 
capital is ^ of the whole. Therefore it participates to the 
extent of y^g- in the total surplus-value of 180, and by this 
means secures a profit at the rate of 18%. Actually, then, 
the profit remaining to be distributed among the other -^q of 
the total capital is only 162, which amounts likewise to 18% 
on the total capital of 900. In other words, the price at 
which C is sold by the owners of the industrial capital of 
900 to the dealers is Y20 c -f 180 v + 162 & = 1,062. Now, 
if the dealer adds his average profit of 18% on his capital of 
100, he sells the commodities at 1,062 + 18 = 1,080, which 
is their price of production, or, from the point of view of the 
total commodity-capital, their value, although he makes his 
profit only in and by the circulation, and only by an excess of 
his selling price over his purchase price. But nevertheless he 
does not sell the commodities above their value, nor above their 
price of production, just because he had bought them from the 
industrial capitalist below their value, or below their price of 
production. 

The merchant's capital, then, plays a determining role in 
the formation of the average rate of profit in proportion to 
its pro rata magnitude in the total capital. Hence if we say 
in the cited case that the average rate of profit is 18%, it 
would be 20%, were it not for the fact that ^ of the total 
capital is merchant's capital, which implies a reduction of the 
rate of profit by ^. 

This requires also a more precise and detailed definition of 



336 Capitalist Production. 

the price of production. By price of production we mean, 
now as before, that price of the commodities, which is equal to 
their cost (the value of the constant -j" variable capital con- 
tained in them) -\- the average profit. But this average 
profit is now differently determined. It is determined by the 
total profit produced by the total productive capital, but it is 
not calculated merely on this total productive capital. It is 
not calculated, as first assumed, so that, if the total produc- 
tive capital were 900, and the profit 180, the average rate of 
profit would be |-|-§- =20%, It is rather calculated on the 
total productive + the merchant's capital, so that, if the total 
capital is 900 productive -|- 100 merchant's capital, the aver- 
age rate of profit is jjf^ = 18%. The price of production 
is, therefore, equal to k (the costs) + 18, instead of k -f- 20. 
In the average rate of profit, the share of the total profit fall- 
ing to the merchant's capital is included. The actual value, 
or price of production, of the total commodity-capital is, 
therefore, k -f- p -|- m (where m indicates profits in mer- 
chant's capital). The price of production, or the price at 
which the industrial capitalist as such sells his commodities, is 
thus smaller than the actual price of production of commodi- 
ties. Or, looking upon the matter from tlie point of view 
of the total commodity-capital, the prices at which the class 
of industrial capitalists sell are lower than the values of com- 
modities. Thus, in the above case, 900 costs -j- 18% on 
900, or 900 + 162 = 1,062. 

It follows, then, that the merchant, when selling a commod- 
ity at 118 for which he paid 100 does indeed raise the price 
by 18%. But since this commodity, for which he paid 100, 
is really worth 118, he does not sell it above its value. We 
shall retain tlie price of production as more closely defined 
above. Then it is evident, that the profit of the industrial 
capitalist is equal to the excess of the price of production of 
his commodities over their cost-price, and that the commercial 
profit, as distinguished from this industrial profit, is equal to 
the excess of the selling price over the price of production of 
the commodities, which is their cost-price for the merchant ; 
but that the actual price of the commodities is equal to their 



Commercial Profit. 337 

price of production plus the commercial profit. Just as tLe 
industrial capital realises only such profits as exist previously 
in the commodities as surplus-value, so the merchant's capital 
realises profits only because the entire surplus-value, or profit, 
has not yet been realised in the price charged for the commodi- 
ties by the industrial capitalist.^ ^ The selling price of the 
merchant, then, stands above his purchase price, not because the 
former stands above the total value^, but because the purchase 
price stands below this value. 

The merchant's capital participates in the compensation of 
the surplus-value to an average profit, although it does not take 
part in its production. So the average rate of profit implies 
that general deduction from surplus-value which falls to the 
share of merchant's capital, a deduction from the profit of the 
industrial capital. 

From the foregoing it follows : 

1) The larger the merchant's capital in proportion to the 
industrial capital, the smaller is the rate of industrial profit, 
and vice versa. 

2) It was seen in the first part, that the rate of profit is al- 
ways lower than the rate of the actual surplus-value, that it 
always expresses the intensity of exploitation too low. In 
the above case, Y20 c -}- 180 v + 180 s means a rate of sur- 
plus-value of 100%, and a rate of profit of only 20%. And 
if the merchant's capital is included in the calculation, then 
the difference between the rate of surplus-value and the rate 
of profit becomes still greater, the latter being only 18% in 
the present case. In that case, the average rate of profit of 
the direct exploiter of labor expresses the rate of profit in 
lower figures than it actually represents. 

Assuming all other circumstances to remain the same, the 
relative volume of the merchant's capital (excepting the small 
dealer, who represents a hermaphrodite form) will be in a 
reverse ratio to the velocity of its turn-over, or in a reverse 
ratio to the energy of the process of reproduction in general. 
In the process of scientific analysis, the formation of an aver- 
age rate of profit appears to take its departure from the in- 

2»John Bellers. 

V 



33^ Capitalist Production. 

dustrial capitals and their competition, and only later on 
does it seem to be corrected, supplemented, and modified by 
the intervention of merchant's capital. But in the course of 
historical events, the process is reversed. It is the commercial 
capital, which first determines the prices of commodities more 
or less by their values, and it is the sphere of circulation, while 
promoting the process of reproduction, which first affords an 
opportunity for the formation of an average rate of profit. The 
commercial profit originally determines the industrial profit. 
ISTot until the capitalist mode of production has asserted itself 
and the producer himself has become a merchant, is the com- 
mercial profit reduced to that aliquot part of the total surplus- 
value, which falls to the share of the merchant's capital as an 
aliquot part of the total capital engaged in the social process of 
reproduction. 

In the analysis of the supplementary compensation of profit 
through the intervention of the merchant's capital it was 
found that no additional element for the advanced money- 
capital entered into the value of commodities, and that the 
addition to the price, by which the merchant makes his profit, 
was merely equal to that portion of the value of commodities, 
which the productive capital did not calculate, but rather left 
out of calculation in the price of production. The case of 
this money-capital is similar to that of the fixed capital of the 
industrial capitalist, which is not all consumed and does not 
pass as an element into the value of commodities. By the 
purchase price which the merchant pays for the commodity- 
capital, he replaces its price of production, M, in money. 
His own selling price, as we have previously shown, is equal 
to M -f- A M, and this A M stands for the addition to the 
price of commodities determined by the average rate of profit. 
By selling these commodities, he recovers together with this 
A M his original money-capital, which he advanced for their 
purchase. Here, then, we see once more that his money-capital 
is nothing else but the commodity-capital of the industrial cap- 
italist transformed into money-capital, and this change does 
not affect the magnitude of the volume of this commodity- 
capital any more than a direct sale to the ultimate consumer 



Commercial ProHt. 339 

instead of the merchant would. It merely anticipates pay- 
ment by the consumer. However, this is correct only on the 
condition, which we had hitherto assumed, that the merchant 
has no expenses, or that he need not advance any fixed or circu- 
lating capital during the process of metamorphosis of the com- 
modities, of buying and selling, aside from the money-capital 
which he must advance for the purchase of the commodities 
from the producer. But this is not so in reality, as we have 
seen in the analysis of the costs of circulation, volume II, chap- 
ter VI. These costs of circulation represent either expenses, 
which the merchant has to reclaim from the other agents of the 
circulation, or expenses, which are due directly to his specific 
business. 

N^o matter what may be the character of these costs of cir- 
culation — whether they arise from the purely mercantile 
nature of the business, or Avhether they belong to the specific 
costs of circulation of the merchant, or whether they represent 
items, which are charges for subsequent processes of produc- 
tion added within the process of circulation, such as express- 
age, transportation, storage, etc. — they always require that the 
merchant should have, aside from his advanced money-capital, 
some additional capital for the purchase and payment of such 
means of circulation. To the extent that this element of cost 
consists of circulating capital, it passes wholly as an additional 
element into the selling price of the commodities; to the ex- 
tent that it consists of fixed capital, it is transferred in pro- 
portion to its wear and tear. It is, however, an element, which 
forms a nominal value, even if it does not add any real value 
to the commodities. Such nominal values, which do not add 
any real value to the commodities, are the purely mercantile 
costs of circulation. But whetlier fixed or circulating, the en- 
tire additional capital participates in the formation of the 
general rate of profit. 

The purely commercial costs of circulation (that is, except- 
ing the costs of transportation, shipping, storage, etc.) resolve 
themselves into the costs required for the purpose of realising 
the value of commodities, by transforming it either from com- 
modities into money, or from money into commodities, by 



340 Capitalist Production. 

means of exchange. We leave entirely out of consideration 
any processes of production, which may eventually continue 
during the process of circulation, and which may exist sepa- 
rately from the merchant's business. In fact, the actual 
transport industry and shipping may be, and are, lines of occu- 
pation entirely separated from the merchant's business, and 
the purchaseable or saleable commodities may be stored in 
warehouses or other public sheds, and the cost of storage, so 
far as it has to be advanced by the merchant, may be charged 
up to him by other people. All this becomes apparent in com- 
merce on a large scale, in which the merchant's capital assumes 
its purest form, unalloyed by other functions. The express 
owner, the railroad director, the ship owner, are not " mer- 
chants." The costs which we consider here are those of buy- 
ing and selling. We- have already remarked in another place 
that these resolve themselves into accounting, bookkeeping, 
marketing, correspondence, etc. The constant capital required 
for this purpose consists of offices, paper, postage, etc. The 
other costs resolve themselves into variable capital advanced 
for the employment of mercantile wage workers. (Express- 
age, cost of transportation, advances for duties, etc., may be 
considered as being advances made by tlie merchant for the 
purchase of commodities and entering into the purchase price 
to be paid by him.) 

All these costs are not incurred in the production of the 
use-value of the commodities, but in the realisation of theiT 
exchange value. They are pure costs of circulation. They 
do not enter into the strict process of production, but since 
they enter into the process of circulation they are part of the 
total process of reproduction. 

The only portion of these costs that interests us here is that 
advanced as variable capital. (Furthermore the following 
questions remain to be analysed: 1) How is the law, that 
only socially necessary labor enters into the value of commodi- 
ties, enforced in the process of circulation? 2) How does 
accumulation represent itself in the case of merchant's cap- 
ital ? 3) How does merchant's capital function in the actual 
process of reproduction of society as a whole ?) 



Commercial Profit. 341 

These costs are due to the economic form of the product, 
that of a commodity. 

Seeing that the labor time lost by the industrial capitalists 
themselves while directly selling commodities to one another, 
in other words, the circulation time of the commodities, does 
not add any value to these commodities, it is evident that this 
labor time is not endowed with any other character by trans- 
ferring it from the industrial capitalist to the merchant. The 
conversion of commodities (products) into money, and of 
money into commodities (means of production) is a necessary 
function of industrial capital and, therefore, a necessary oper- 
ation for the capitalist, who is but personified capital endowed 
with his consciousness and will. But these functions do not 
create any value, nor do they produce any surplus-value. The 
merchant, by performing these operations, by further promot- 
ing the functions of capital in the sphere of circulation after 
the productive capitalist has ceased to do so, merely steps into 
the shoes of the industrial capitalist. The labor time re- 
quired for these operations is devoted to certain necessary 
operations in the process of reproduction of capital, but it 
adds no value to it. If the merchant did not perform these 
operations (did not expend the labor time required for them), 
he would not be using his capital as a circulation agent of in- 
dustrial capital; he would not be continuing the interrupted 
function of the industrial capitalist, and consequently he could 
not participate as a capitalist, in proportion to his advanced 
capital, in the mass of profit produced by the class of industrial 
capitalists. In order to share in the mass of surplus-value, in 
order to expand the value of his advanced capital, the commer- 
cial capitalist need not employ any wage workers. If his busi- 
ness is small, he may be the only worker in it. But his wages 
are derived from that portion of the social profit which falls to 
his share through the difference between the purchase price 
paid by him for commodities and their actual price of produc- 
tion. 

Under these circumstances, and assuming the merchant's 
advanced capital to be small, the profit realised by him may 
not be a bit larger, or may even be smaller, than the wages of 



342 Capitalist Production. 

one of the better paid skilled wage workers. In fact, there 
are employed, side by side with him, many commercial agents 
of the industrial capitalist, such as buyers, sellers, travelers, 
Avho receive the same or a higher income than he, either in 
the form of wages, or in the form of a check upon the profit 
(percentages, tantiemes) made by each sale. In the first case, 
the merchant pockets the mercantile profit as an independent 
capitalist; in the other case, the salesman, the Avage laborer 
of the industrial capitalist, receives a portion of the profit, 
either in the form of wages, or in the form of a proportional 
share in the profit of the industrial capitalist, whose direct 
agent he is, while his principal pockets both the industrial 
and the commercial profit. But in all these cases the income 
of the circulation agent is derived from the merchant's profit, 
even though he may regard it merely as wages paid to him for 
the performance of his labor, or, where it does not appear in 
this light, though his profit may not be any larger than the 
wages of a better paid wage laborer. This follows from the 
fact that his labor is not labor jDroducing any values. 

The prolongation of the act of circulation implies for the in- 
dustrial capitalist 1) a personal loss of time, to the extent 
that it prevents him from performing his own function as a 
manager of the productive process; 2) a prolonged stay of 
his product, in the form of money or commodities, in the proc- 
ess of circulation, that is, a process, in which it does not pro- 
duce any value and by which the direct process of production 
is interrupted. If this process is not to be interrupted, pro- 
duction must either be restricted, or more money-capital must 
be advanced, in order that the process of production may pro- 
ceed on the same scale. This means every time that either a 
smaller profit is made by the capital hitherto invested, or 
that additional money-capital must be advanced in order to 
make the same profit. All this remains unchanged, when the 
merchant takes the place of the industrial capitalist. Instead 
of the industrial capitalist, the merchant then spends this pro- 
longed time in the process of circulation ; instead of the indus- 
trial capitalist, the merchant advances additional capital for 
the circulation; or, what ^mounts to the same, instead of a. 



Commercial Profit. 343 

large portion of the industrial capital straying off continually 
into the process of circulation, the capital of the merchant is 
wholly tied up in it; and instead of the industrial capitalist 
making a smaller profit, he must yield a portion of his profit 
wholly to the merchant. So long as merchant's capital re- 
mains within the boundaries, in which it is necessary, the only 
difference is that this division of the functions of capital re- 
duces the time exclusively needed for the process of circula- 
tion, that less additional capiital is advanced for this purpose, 
and that the loss of the total profits represented by the profits 
of merchant's capital is smaller than it would have been other- 
wise. If in the above example, a capital of Y20 c -|- 180 v -f- 
180 s, assisted by a merchant's capital of 100, leaves a profit 
of 162, or 18% for the industrial capitalist, or, in other 
words, implies a deduction of 18, then the additional capital 
required without the assistance of this independent merchant's 
capital would probably be 200, and the total advance to be 
made by the industrial capitalist would be 1,100 instead of 
900, which, with a surplus-value of 180, would mean a rate of 
profit of only 16^-j-%. 

ISTow, if the industrial capitalist, who acts as his own mer- 
chant, advances not only the additional capital with which he 
buys new commodities, before his product in process of circu- 
lation has been reconverted into money, but also capital (office 
expenses and wages for commercial laborers) for the realisa- 
tion of the value of his commodity-capital, or, in other words, 
for the process of circulation, then these costs form additional 
capital, but they produce no surplus-value. They must be 
made good out of the value of the commodities. For a portion 
of the value of these commodities must once more be converted 
into these circulation costs ; and no additional surplus-value is 
created thereby. So far as this concerns the total capital of 
society, it means that a portion of it must be set aside for sec- 
ondary operations, which are no part of the process of creating 
value, and that this portion of the social capital must be con- 
tinually reproduced for this purpose. This reduces the rate 
of profit for the individual capitalist and for the entire class 
of industrial capitalists, a result, which follows from every 



344 Capitalist Production. 

addition of auxiliary capital, whenever such capital is required 
for the purpose of setting in motion the same mass of variable 
capital. 

To the extent tliat these additional costs connected with the 
business of circulating are transferred from the shoulders of 
the industrial to those of the commercial capitalist, the same 
reduction in the rate of profit takes place, only to a smaller 
extent and in another way. The matter now assumes the form 
that the merchant advances more capital than would be neces- 
sary, if these costs did not exist, and that the profit on this 
additional capital increases the amount of the commercial 
profit, so that the merchant's capital shares with the industrial 
capital to a greater extent in the leveling of the average rate 
of profit, thereby lowering the average profit. If in our above 
examply 50 additional capital are advanced for those costs to- 
gether with a merchant's capital of 100, then the total surplus- 
value of 180 is distributed over a productive capital of 900 plus 
a merchant's capital of 150, a total of 1,050. The average rate 
of profit then falls to I7y%. The industrial capitalists sells 
his commodities to the merchant at 900 + 154|- = 1,054y, 
and the merchant sells them at 1,130, namely 1080 -\- 50 for 
costs which he must recover. For the rest it must be assumed 
that the division between merchant's and industrial capital is 
accompanied by a centralisation of the expenses of commerce 
and, consequently, by their reduction. 

The question is now : How is it with the commercial wage 
workers employed by the commercial capitalist, in this case 
by the merchant ? 

In one respect, such a commercial laborer is a wage laborer 
like others. For, in the first place, his labor-power is bought 
with the variable capital of the merchant, not with the money 
spent by him as revenue, and consequently this labor-power 
is not bought for private service, but for the creation of value 
by means of the capital advanced for it. In the second place, 
the value of this labor-power, and thus his wages, are deter- 
mined in the same way as those of other wage workers, namely 
by the cost of production and reproduction of his specific labor- 
power, not by the product of his labor. 



Commercial Profit. 345 

However, we must make the same distinction between the 
commercial wage worker and the wage workers directly em- 
ployed by the industrial capital which we found existing be- 
tween the industrial capital and merchant's capital, and thus 
between the industrial capitalist and the commercial capitalist. 
Since the merchant, as a mere agent of circulation, produces 
neither value nor surplus-value (for the additional value, 
which he adds to the commodities by his expenses, resolves it- 
self into an addition of previously existing values, although 
the question here poses itself: How does he preserve the 
value of his constant capital?) it follows that the mercantile 
laborers employed in these same functions cannot very well 
create any direct surplus-value for him. Here, as in the case 
of the productive laborers, we assume that wages are deter- 
mined by the value of labor-power, and that the merchant 
does not make money by depressing wages, so that he does not 
allow in his accounts for any advance of wages which he paid 
only in part, in other words, that he does not make money by 
cheating his clerks. 

The difficulty in the case of the mercantile wage workers is 
by no means that of explaining the way in which they produce 
any direct profits for their employer, even though they do not 
create any direct surplus-value (of which profit is but a 
changed form.) This part of the question has already been 
solved by the general analysis of commercial profits. Just as 
the industrial capital makes profits by selling labor embodied 
and realised in commodities for which it has not paid any equiv- 
alent, so the merchants' capital makes profits by not paying the 
productive capital for all the unpaid labor incorporated in the 
commodities (that is, commodities in so far as the capital in- 
vested in their production functions as an aliquot part of the 
total industrial capital), while in selling it demands payment 
for this unpaid portion still contained in the commodities and 
not paid for by itself. The relation of the merchant's capital 
to the surplus-value is different from that of the industrial 
capital. The industrial capital produces surplus-value by the 
direct appropriation of the unpaid labor of others. The mer- 
chant's capital, on the other hand, appropriates a portion of 



346 Capitalist Production. 

this surplus-value by having this portion transferred from the 
industrial capital to itself. 

It is only by its function of realising values that the mer- 
chant's capital serves in the process of reproduction as capital 
and in this capacity gets a share of the surplus-value produced 
by the total capital. The mass of profits depends for the in- 
dividual merchant on the mass of capital, which he can invest 
in this process, and he can use so much more of it in buying 
and selling, the more unpaid labor his clerks perform. The 
function itself, by virtue of which the money of the merchant 
capitalist is capital, is largely performed by his employes. 
The unpaid labor of his clerks, while it does not create any 
surplus-value, at least appropriates surplus-value for him, 
which amounts to the same thing so far as results on his capi- 
tal go. This unpaid labor is for him, therefore, a source of 
profit. Otherwise the mercantile business could never be car- 
ried on capitalistically, on a large scale. 

Just as the unpaid labor of the laborer of the productive 
capital creates surplus-value for it in a direct way, so the un- 
paid labor of the commercial wage workers secures a share of 
this surplus-value for the merchant's capital. 

Here is the difiiculty : Seeing that the labor time and the 
labor of the merchant himself do not create any value, but 
only secure for him a share of already produced surplus-value, 
how is it with the variable capital, which he invests in the 
purchase of commercial labor-power ? Must this variable cap- 
ital be included in the expense account of advanced mer- 
chant's capital ? If not, then it seems to be in contradiction 
with the law of the compensation of the average rate of profit ; 
for where is there a capitalist who would advance 150, if he 
could place only 100 in account ? If yes, it seems to be in 
contradiction with the nature of merchant's capital, since this 
class of capital does not act in the capacity of capital by set- 
ting in motion the labor of others, as the industrial capital 
does, but rather by performing its own work, that is, the 
process of buying and selling, and only for this and by this 
means does it transfer a portion of the surplus-value pro- 
duced by the industrial capital to itself. 



Cominercial Profit. 347 

(Therefore the following points must be analysed: the va- 
riable capital of the merchant; the law of necessary labor in 
circulation; the way in which the merchant's labor preserves 
the value of his constant capital; the role of merchant's cap- 
ital in the total process of reproduction ; and finally, the two- 
fold materialisation in commodity-capital and money-capital 
on one side, and in commercial capital and financial capital 
on the other.) 

If every merchant had only as much money as he is per- 
sonally able to turn over by his own labor, there would be 
an infinite dissociation of merchant's capital. This dissocia- 
tion would increase to the extent that productive capital, in 
the foru^ard march of the capitalist mode of production, would 
produce and operate on a larger scale. The disproportion 
between the two classes of capital would increase. In pro- 
portion as capital in the sphere of production would be cen- 
tralised, it would be decentralised in the sphere of circula- 
tion. The purely commercial business of the industrial capi- 
talist, and thus his purely commercial expenses, would be in- 
finitely expanded thereby, for he would have dealings with 
1,000 capitalists at a time instead of 100. .In this Avay, a 
large part of the advantage of the independent organisation of 
merchant's capital would be lost, l^oi only the purely com- 
mercial expenses, but also the other costs of circulation, sort- 
ing, expressage, etc., would grow. This applies to the indus- 
trial capital. Xow let us consider the merchant's capital. 
In the first place, let us look at the purely commercial labors. 
It does not require more time to figure with large than with 
small numbers. But it costs ten times as much time to make 10 
purchases at 100 p.st. each as it does to make one purchase at 
1,000 p.st. It costs ten times as much correspondence, paper, 
postage, to carry on a correspondence with 10 small mer- 
chants as it does with one large merchant. A limited division 
of labor in a commercial office, in which one keeps books, an- 
other has charge of the treasury, a third carries on the cor- 
respondence, one man buys, another^ sells, another travels, 
etc., saves immense quantities of labor time, so that the num- 
ber of workers employed in wholesale commerce stand in no 



348 Capitalist Production. 

proportion to the comparative size of the business. This is 
so, because in commerce much more than in industry the same 
function, whether performed on a large or a small scale, 
costs the same labor time. For this reason, concentration 
ai)pears historically in the merchant's business before it 
shows itself in the industrial workshop. There are further- 
more the expenses for constant capital. 100 small offices cost 
incomparably more than one large office, 100 small ware>- 
houses more than one large one, etc. The costs of transporta- 
tion, which enter into the accounts of commercial business at 
least as advances, grow with this dissociation. 

The industrial capitalist would have to spend more for 
labor and circulation in the commercial part of his business. 
The same merchant's capital, when distributed among many 
small capitalists would require more laborers for the per- 
formance of its functions, on account of this dissociation, and, 
besides, more merchant's capital would be needed in order 
to turn over the same commodity-capital. 

Let us designate the entire merchant's capital directly in- 
vested in the purchase and sale of commodities by B, and the 
corresponding variable capital invested in wages of commer- 
cial help by b. Then B -|- b is smaller than it would be, if 
every merchant had to worry along without any assistance 
and without investing any capital in b. However, we have 
not yet overcome all difficulties. 

The selling price of the commodities must suffice, 1) to 
pay the average profit on B + b. This explains itself by 
virtue of the fact that B -}- b represents a reduction of the 
original B and a smaller merchant's capital than would be 
required without b. But this selling price must also suffice, 
2) to cover not only the additional profit on b, but to recover 
also the paid wages, the variable capital of the merchant. 
There is the difficulty. Does b form a new constituent of the 
price, or is it merely a part of the profit made by means of 
B -f- b, which takes on the appearance of wages only so far 
as the mercantile wage worker is concerned, and simply re- 
places the variable capital from the point of view of the mer- 
chant? In this last case, the profit made by the merchant 



Commercial Profit. 349 

on his advanced capital B -f- b would be only equal to the profit 
due to B according to the general rate, plus b, which he pays 
out in the form of wages without getting a profit on it. 

The crux of the matter is, indeed, to find the limits (math- 
ematically speaking) of b. Let us first define the difiiculty 
exactly. Let us designate the capital invested directly in 
buying and seling commodities by B, the constant capital 
(expenses of objective materials of commerce) consumed in 
this function by K, and the variable capital invested by the 
merchant by b. 

The recovery of B offers no difficulties. It simply repre- 
sents for the merchant the realised purchase price, the price 
of production for the manufacturer. The merchant pays this 
price and in reselling he recovers B as a part of his selling 
price. Apart from this B, he also receives a profit on B, as 
we have previously explained. Tor instance, let the com- 
modities cost 100 p.st. The profit on this may be 10%. In 
that case the commodities are sold at 110. These commodi- 
ties cost previously 100, and the merchant's capital of 100 
merely makes an additional 10 out of them. 

I*^ow let us look at K. It will at most be as large as, but in 
fact smaller, than that portion of the constant capital, which 
the producer would have to invest in the department of buy- 
ing and selling, and which would be an addition to the con- 
stant capital invested by him in direct production. How- 
ever, this portion must be continually recovered by the price 
of the commodities, or, what amounts to the same, a corres- 
ponding portion of the commodities must be continually ex- 
pended in this form, must, from the point of view of the total 
capital of society, be continually reproduced in this form. 
This portion of the advanced constant capital would reduce th^ 
rate of profit just as well as the entire mass of it invested in 
production itself. To the extent that the industrial capitalist 
gives up the commercial part of his business to the merchant, 
he is no longer compelled to advance this part of the capital. 
The merchant advances it in his stead. In a way he does 
this but nominally, since a merchant neither produces nor 
reproduces the constant capital consumed by him (the cost of 



350 Capitalist Production. 

tlie objective materials of commerce). Its production ap- 
pears as a specific business, or at least as a part of the busi- 
ness, of some industrial capitalists, who play a similar role 
as those, who supply the constant capital for the producers of 
necessities of life. The merchant recovers this constant cap- 
ital and his profit on it. Both things reduce the profit of the 
industrial capitalist to that extent. But owing to the econo- 
mies and concentration which come with a division of labor, 
he loses less profits than he would, if he had to advance his 
own capital for this purpose. The reduction of the rate of 
profit is smaller, because the advanced capital is smaller. 

So far, then, the selling price is made up of B -[- K -j- 
profits on B + K- This portion of the selling price offers 
no further difficulties. But now b, the variable capital ad- 
vanced by the merchant, enters into this consideration. 

The selling price is then made up of B -}- K + b -|- profits 
on B -j- K --|- profits on b.' 

B makes good merely the purchase price and adds nothing 
to this price but the profit on B. K adds K itself plus a 
profit on K; but K -f- profit on K, the circulation cost ad- 
vanced in the form of constant capital plus a corresponding 
average profit, would be larger in the hands of the industrial 
capitalist than it is in those of the merchant. The reduction 
of the average profit assumes this form: It is as though the 
full average profit had been calculated, after deducting B 4" 
K from the advanced industrial capital, but the deduction from 
this average profit for B -[~ K paid to the merchant, so that 
this deduction appears as the profit of a particular class of 
capital, of merchant's capital. 

But it is different with b + profits on b, or in the present 
case, where we have assumed a rate of profit of 10%, with 
b + Y^-b. Here lies the real difficulty. 

What the merchant buys with b, is according to our assump- 
tion nothing but commercial labor, in other words, labor re- 
quired for the promotion of the functions of circulating the 
capital, of performing the acts C — M and M — C. But 
this commercial labor is that labor, which is generally neces- 
sary, in order that any capital may perform the functions of 



Commercial ProHt. 35 1 

commercial capital, the conversion of commodity-capital into 
money and money into commodities. It is labor which real- 
ises values, but does not create any. And only to the extent 
that a capital performs this function — that a capitalist per- 
forms these operations with his capital — ' does this capital 
serve as commercial capital and participate in the regulation 
of the general rate of profit, that is, draw its dividend out of 
the total profit. But in b + profit on b, it looks as though 
labor were being paid, in the first place (for it makes no differ- 
ence, whether the industrial capitalist pays the merchant for 
his own labor or the clerk employed by the merchant for his), 
and in the second place, as though it contained a profit on 
labor, which the merchant himself has to perform. The mer- 
chant's capital gets in the first place its b refunded, and in 
the second place a profit on it. This arises from the fact 
that it demands pay, in the first place, for work, which it per- 
forms in its capacity as merclianfs capital, and that it re- 
ceives, in the second place, a profit in its capacity of capital, 
for performing work, which is remunerated in the profit as 
the function of capital. This, then, is the question which we 
have to solve. 

Let us assume that B = 100, b =. 10, and the rate of profit 
= 10%. We place K=. O, in order to leave this element 
of the purchase price, which does not belong here and has 
already been accounted for, out of consideration. In that 
case, the selling price would beB + P + b + p (orB + Bp' 
+ b -j- hp') ; where p' stands for the rate of profit. This 
means in figures 100 + 10 -f 10 -f 1 = 121. 

l^ow, if b would not be invested by the merchant in wages 
— since b is paid only for commercial labor, for labor re- 
quired for the realisation of the value of commodity-capital 
thrown on the market by industrial capital — then the condi- 
tion of the matter would be the following: In order to buy 
or sell anything for B = 100, the merchant would spend his 
time, and we will assume, that this is the only time at his 
disposal. The commercial labor represented by b, or 10, if 
paid for by a profit instead of wages, would presuppose an- 
other commercial capital of 100, which, at 10%, would be 



35^ Capitalist Production. 

equal to b = 10. This second B of 100 would not be added 
to the price of commodities, but the 10% would. We should 
then have two operations with 100, making 200, that would 
buy commodities at 200 + 20 = 220. 

Since merchant's capital is nothing but an independent 
form of a portion of industrial capital engaged in the process 
of circulation, all questions referring to it must be solved by 
representing the problem at first in that form, in which the 
phenomena peculiar to merchant's capital do not yet appear 
in an independent shape, but still in direct connection with 
industrial capital as one of its subdivsions. As an office 
separate from the workshop, the mercantile capital serves 
continually in the process of circulation. It is here that we 
must first analyse the b under consideration — in the office of 
the industrial capitalist himself. 

The office is from the outset always infinitesimally small 
compared to the industrial workshop. Eor the rest, it is clear 
that the commercial operations increase to the extent that 
the scale of production is enlarged. These are operations, 
which must be continually performed for the circulation of 
the industrial capital, in order to sell the product existing in 
the shape of commodities, to convert the money so received 
once more into means of production, and to keep account of 
the whole. The calculation of prices, bookkeeping, managing 
funds, carrying on the coiTespondence, all these belong under 
this head. The more developed the scale of production is, 
the greater, if not in proportion, will be the commercial oper- 
ations of industrial capital, and consequently the labor and 
other costs of circulation for the realisation of value and sur- 
plus-value. This necessitates the employment of commercial 
wage workers, who form the office staff. The expenses for 
these, although incurred for wages, differ from the variable 
capital invested in the purchase of productive labor. It in- 
creases the expenses of the industrial capitalist, the mass of 
capital to be advanced, without increasing the direct surplus- 
value. For these expenses are made for labor, which is em- 
ployed only for the realisation of already created values. 
Like every expense of this kind, these expenses reduce the 



Commercial Profit. 353 

i'ate of profit, because the advanced capital increases, but not 
the surplus-value. If the surplus-value s remains constant, 
while the advanced capital C increases to C -f- A C, then the 
place of the rate of profit -^ is taken by the smaller rate of 
profit "c+Vc • ^^^ ^^^^ reason, the industrial capitalist en- 
deavors to limit these expenses of circulation to a minimum, 
just as he does with his expenses for constant capital. Hence 
industrial capital does not maintain the same relations to its 
commercial wage laborers that it does to its productive wage la- 
borers. The greater the number of productive wages laborers 
employed under otherwise equal circumstances, the more volu- 
minous is production, the greater the surplus-value or profit. 
On the other hand, the larger the scale of production, the 
greater the quantity of value and surplus-value to be realised, 
the greater, in other words, the produced commodity-capital, the 
larger grow the absolute ofiice expenses, even if they do not 
grow relatively, and give rise to some kind of division of labor. 
To what extent profit is the first condition for these expenses, 
is shown among other things by the fact, that with the in- 
crease of commercial salaries a part of them is frequently 
paid by a share in the profits. It is in the nature of things 
that labor consisting merely of intermediary operations, which 
are connected either with a calculation of values, or with their 
realisation, or with the reconversion of the realised money 
into means of production, a labor whose amount depends on 
the quantity of produced values about to be realised, should 
not act as cause of the respective magnitudes and masses of 
these values, as directly productive labor does, but as their re- 
sult. The case of the other costs of circulation is similar. 
In order that plenty may be measured, weighed, wrapped, 
transported, plenty must be supplied. The amount of labor 
consumed in packing, transporting, etc., depends on the quan- 
tity of the commodities which are the objects of its activity, 
not vice versa. 

The commercial laborer does not produce any surplus-value 
directly. But the value of his labor is determined by the 
value of his labor-power, that is, of its costs of production, 

while the application of this labor-power, its exertion, ex- 

w 



354 Capitalist Production. 

pression, and consumj)tion, the same as in the case of every 
other wage laborer, is by no means limited by the value of 
his labor-power. His wages are therefore not necessarily in 
proportion to the mass of profits, which he helps the capitalist 
to realise. What he costs the capitalist and what he makes 
for him are two different things. He adds to the income 
of the capitalist, not by creating any direct surplus-value, but 
by helping him to reduce the costs of the realisation of sur- 
plus-value. In so doing, he performs partly unpaid labor. 
The commercial laborer, in the strict meaning of the term, 
belongs to the better paid classes of wage workers, he belongs 
to the class of skilled laborers, which is above the average. 
However, wages have a tendency to fall, even in proportion to 
the average labor, with the advance of the capitalist mode of 
production. This is due to the fact that in the first place, 
division of labor in the ofiice is introduced; this means that 
only a onesided development of the laboring capacity is re- 
quired, and that the cost of this development does not fall 
entirely on the capitalist, since the ability of the laborer is 
developed through the exercise of his function and increases 
so much faster, the more onesidedly the division of labor de- 
velops. In the second place, the necessary preparation, such 
as the learning of commercial details, languages, etc., is more 
and more rapidly, easily, generally, cheaply reproduced with 
the progress of science and popular education, to the extent 
that the capitalist mode of production organises the methods 
of teaching, etc., in a practical manner. The generalisation 
of public education makes it possible to recruit this line of 
laborers from classes that had formerly no access to such educa- 
tion and that were accustomed to a lower scale of living. 
At the same time this generalisation of education in- 
creases the supply and thus competition. With a few 
exceptions, the labor-power of this line of laborers is therefore 
depreciated with the progress of capitalist development. 
Their wages fall, while their ability increases. The capital- 
ist increases the number of these laborers, whenever he has 
more value and profits to realise. The increase of this labor 



Commercial Proiit. 355 

is always a result, never a cause of the augmentation of sur- 
plus-value.^'^ 



We see, then, that a duplication takes place here. On the 
one hand, the functions of commodity-capital and money- 
capital (which later become merchant's capital) are general 
forms assumed by industrial capital. On the other hand, 
particular capitals, and therefore a particular series of cap- 
italists, are exclusively devoted to these functions. And these 
functions develop into specific spheres of enhancing the value 
of capital. 

The commercial functions and expenses of circulation be- 
come independent only in the case of the mercantile capital. 
That side of industrial capital, which is devoted to the circu- 
lation, exists not only in its continuous shape of commodity- 
capital and money-capital, but also in the office alongside of 
the workshop. But it assumes an independent existence in 
the mercantile capital. For this capital, its office is its only 
workshop. The portion of capital employed in the form of 
expenses of circulation appears much larger in the business 
of the large merchant than in that of the industrial capitalist, 
because the offices connected with every industrial workshop 
are concentrated in the hands of a few merchants, and so is 
at the same time that portion of the capital, which would have 
to be invested for this purpose by the entire class of indus- 
trial capitalists. These merchants take care of the circula- 
tion and provide for the expenses incidental to its continua- 
tion. 

For the industrial capital, the expenses of circulation ap- 
pear as dead expenses, and so they are. For the merchant 
they appear as a source of his profit, which is proportional to 

*" How well this prognosis of the fate of the commercial proletariat, written 
in 1865, has stood the test can be corroborated by hundreds of German clerks, 
who, trained in all commercial operations and acquainted with three or four lan- 
guages, in vain offer their services in London City at 25 shillings per week, 
far below the wages of a good machine maker. A blank of two pages in the 
manuscript indicates, that this point was to be further elaborated. For the rest, 
we refer the reader to volume II, chapter VI (Tlie Expenses of Circulation), 
where various things belonging under this head have already been discussed. — F. E, 



356 Capitalist Production. 

the level of the average rate of profit, whose existence is as- 
sumed. The investment to be made by the mercantile capital 
for these expenses of circtilation is, therefore, a productive in- 
vestment. And for this reason the commercial labor which it 
buys is likewise immediately productive for it. 



CHAPTEK XVIII. 

THE TTJEJS"-OVEE. OF MEKCHANt's CAPITAL. THE PRICES. 

The turn-over of industrial capital is the combination of its 
time of production and time of circulation. It comprises, 
therefore, the process of production as a whole. The turn- 
over of merchant's capital, on the other hand ; being in reality 
nothing but a movement of commodity-capital in an inde- 
pendent form, represents merely the first phase in the meta- 
morphosis of commodities, C — M, as a movement of some 
capital returning to itself. M — C, C — M, is the turn- 
over of merchant's capital from the mercantile point of view. 
The merchant buys, converts his money into commodities, 
then sells, converts the same commodities back into money. 
And so forth in continuous repetitions. Within the circula,- 
tion, the metamorphosis of industrial capital always presents 
itself in the form of C — M — C'" ; the money realised by 
the sale of the produced commodities C is used for the pur- 
chase of new means of production C". This amounts to a 
practical exchange of C for C, and the same money thus 
changes hands twice. Its movement acts as an intermediary 
between two different kinds of commodities C and C". But 
in the case of the merchant, it is the same commodity, which 
changes hands twice in the process M — C — M'. It merely 
promotes the reflux of his money to him. 

For instance, if a certain merchant's capital is 100 p.st., 
and the merchant buys for these 100 p.st. commodities and 
sells these commodities for 110 p.st., then his capital of 100 
p.st. has completed one turn-over, and the number of its turn- 
overs in one year depends on the number of times which it 
can repeat this movement M — C — M'. 



Turn-over of Merchant's Capital. 357 

We leave entirely out of consideration at this point those 
expenses, which may be concealed in the difference between 
the purchase price and the selling price, since these expenses 
do not alter in any way the form, which we are now analys- 
ing. 

The number of turn-overs of a certain merchant's capital 
shows evidently some analogy to the repeated cycles of money 
in its capacity as a mere medium of circulation. Just as the 
same dollar, which circulates ten times, buys ten times its 
value in commodities, so the same money-capital of the mer- 
chant, when turned over ten times, buys ten times its value in 
commodities, or realises a total commodity-capital of ten times 
its value, for instance a merchant's capital of 100 a value of 
1,000. But there is this difference : In the circulation of 
money as a medium of circulation, it is the same piece of 
money, which passes through different hands and performs 
repeatedly the same function, thereby making up for the lim- 
ited number of the circulating pieces of money by the velocity 
of its circulation. But in the case of the merchant it is the 
same money-capital, the same money-value regardless of the 
pieces of money of which it may be composed, which repeatedly 
buys and sells the amount of its value, thereby returning re- 
peatedly to the same hands from which it departed as M -[- 
A M, value plus surplus-value. This is characteristic of its 
turn-over as a turn-over of capital. It always withdraws more 
money from circulation than it threw into it. By the way, 
it is a matter of course that an accelerated turn-over of mer- 
chant's capital (in which the function of money as a means 
of payment likewise predominates whenever the credit system^ 
is developed) is accompanied by a more rapid circulation of 
the same quantity of money. 

A repeated turn-over of commercial capital, however, never 
expresses anything else but a repetition of buying and selling ; 
while a repeated turn-over of industrial capital expresses the 
periodicity and renovation of the entire process of reproduc- 
tion (which includes the process of consumption). For the 
merchant's capital, this appears merely as an outward condi- 
tion. The industrial capital must continually throw com- 



358 Capitalist Production. 

modities on the market and withdraw others from it, in order 
that the turn-over of merchant's capital may continue rapidly. 
If the process of reproduction proceeds slowly in general, 
then the turn-over of merchant's capital does likewise. ISTow, 
it is true that the merchant's capital promotes the turn-over 
of the productive capital, but only in so far as it shortens the 
time of circulation of the latter. It has no direct influence 
on the time of production, which is also one of the limits of 
the time of turn-over of industrial capital. This is the 
first barrier for the turn-over of merchant's capital. In the 
second place, aside from the barrier formed by reproductive 
consumption, the turn-over of the merchant's capital is ulti- 
mately limited by the velocity and volume of individual con- 
sumption, since the entire part of commodity-capital which 
passes into the fund for consumption depends on that. 

However, aside from the turn-overs in the world of mer- 
chants, in which one merchant always sells the same commod- 
ity to another, whereby this sort of circulation may assume 
the aspect of great prosperity during times of speculation, 
the merchant's capital abbreviates in the first place the phase 
C — M for the productive capital. In the second place, 
under the modern credit system, it disposes of a large portion 
of the total capital of society, so that it can repeat its pur- 
chases, even before it has definitely sold its previous pur- 
chases. And it is immaterial in this case, whether the mer- 
chant sells directly to the ultimate consumer, or whether a 
dozen other merchant's intervene between the first merchant 
and the ultimate consumer. Owing to the immense elasticity 
of the process of reproduction, which at any time may be 
driven beyond all bounds, this process finds no obstacle in pro- 
duction itself, or at best a very elastic one. Aside from the 
separation of C — M and M — C, which follows from the 
nature of commodities, a fictitious demand is here created. In 
spite of its independent status, the movement of merchant's 
capital is never anything else but the movement of industrial 
capital within the sphere of circulation. But thanks to its 
individualisation it moves within certain limits independ- 



Turn-over of Merchant's Capital. 359 

ently of the bounds of the process of reproduction, and 
thereby drives this process itself beyond its boundaries. The 
internal dependence and the external independence drive mer- 
chant's capital to a point, where the internal connection is 
violently restored by a crisis. 

Hence we note the phenomenon that crises do not show 
themselves, nor break forth, first in the retail business, which 
deals with direct consumption, but in the spheres of whole- 
sale business and banking, by which the money-capital of so- 
ciety is placed at the disposal of wholesale business. 

The manufacturer may actually sell to the exporter, and the 
exporter may in his turn sell to his foreign customer, the im- 
porter may sell his raw materials to the manufacturer, and 
the manufacturer his products to the wholesale dealer, etc. 
But at some particular and unseen point, the goods may lie 
unsold. On some other occasion, again, the supplies of all 
producers and middle men may become gradually overstocked. 
Consumption is then generally at its best either because one 
industrial capitalist sets a succession of others in motion, or 
because the laborers employed by them are fully employed and 
spend more than ordinarily. With the gTowing income of the 
capitalists their expenditures increase likewise. Besides, we 
have seen in volume II, Part III, that a continuous circulation 
takes place between constant capital and constant capital (even 
without considering any accelerated accumulation), which is 
in so far independent of individual consumption, as it never 
enters into such consumption, but which is nevertheless defi- 
nitely limited by it, because the production of constant capi- 
tal never takes place for its own sake, but solely because more 
of this capital is needed in those spheres of production whose 
products pass into individual consumption. However, this 
may proceed undisturbed for a while, stimulated by prospec- 
tive demand, and in such lines the business of merchants and 
industrial capitalists prospers exceedingly. A crisis occurs 
whenever the returns of those merchants, who sell at long 
range, or whose supplies have accumulated also on the home 
market, become so slow and meager, that the banks press for 
payment, or the notes for the purchased commodities become 



360 Capitalist Production. 

due before they have been resold. It is then that forced 
sales take place, sales made in order to be able to meet pay- 
ments. And then we have the crash, which brings the decep- 
tive prosperity to a speedy end. 

Bnt the superficiality and meaninglessness of the turn-over 
of merchant's capital are still greater, because the turn-over 
of one and the same merchant's capital may promote simul- 
taneously or successively the turn-overs of several productive 
capitals. 

JSTow, the turn-over of merchant's capital may not only 
promote the turn-overs of several industrial capitals, but also 
the opposite phase of the metamorphosis of commodity-capi- 
tal. For instance, the merchant buys linen from the manu- 
facturer and sells it to the bleacher. In this case, the turn- 
over of the same merchant's capital — in fact, the same 
C — M, a realisation on the linen — represents two opposite 
phases for two different industrial capitals. So far as the 
merchant sells at all for productive consumption, his C — M 
always means M — C for some industrial capitalist, and his 
M — C always C — M for some other industrial capitalist. 

If we leave out of consideration, as we do in this chapter, 
K, the expenses of circulation, in other words, if we leave 
aside that portion of capital which the merchant advances 
apart from the money required for the purchase of commodi- 
ties, it follows that A K, the additional profit made on this 
additional capital, will likewise be left out. This is the 
strictly logical and mathematically correct mode of analysis, 
if we wish to study the way in which the profits and turn-over 
of merchant's capital affect prices. 

If the price of production of 1 lb. of sugar is 1 p.st., the 
merchant can buy 100 lbs. of sugar with 100 p.st. If he 
buys and sells this quantity in the course of one year, and if 
the annual rate of average profit is 15% he would add 15 
p.st. to 100 p.st., and 3 sh. to the price of production of 1 lb. 
of sugar, 1 p.st. That is, he would sell one pound of sugar 
at 1 p.st. 3 sh. But if the price of production of 1 lb. of 
sugar should fall to 1 sh., then the merchant could buy 2,000 
lbs. of sugar with 100 p.st., and he could sell the sugar at 1 



The Prices. 361 

sh. If d. per lb. The annual profit on capital invested in the 
sugar business would still be 15 p.st. on each 100 p.st. Only 
he has to sell 100 lbs. in the first case, while he must sell 2,000 
lbs. in the second place. The high or low level of the price 
of production would not have anything to do with the rate of 
profit. But it would have a great deal, or even a decisive 
deal, to do with that aliquot part of the selling price of each 
lb. of sugar which resolves itself in mercantile profit; in 
other words, it would have a great deal to do with the addi- 
tion to the price which the merchant makes on a certain quan- 
tity of commodities, or products. If the price of production 
of a certain commodity is small, then the amount advanced 
by the merchant for the purchase of a certain quantity of that 
commodity is also small, and so is the amount of profit made 
by him on this quantity of cheap commodities. Or, what 
amounts to the same, he can buy with a certain amount of cap- 
ital, for instance with 100, a large quantity of these commod- 
ities, and the total profit of 15, which he makes on 100, will 
be distributed in small fractions over each individual portion 
of this mass of commodities. The opposite takes place in the 
opposite case. This depends entirely on the greater or smaller 
productivity of the industrial capital, with whose products 
he trades. If we except the cases, in which the merchant is a 
monopolist and monopolises at the same time the production 
of certain goods, as did the Dutch East India Company once 
upon a time, we must say that there is nothing more ridiculous 
than the current idea that it depends on the merchant whether 
he wants to sell many commodities at a small profit or few 
commodities at a large profit on the individual commodities. 
The two limits of his selling price are: On one hand, the 
price of production of commodities, over which he has no con- 
trol;, on the other hand, the average rate of profit, over which 
he has also no control. The only thing which he has to de- 
cide is whether he wants to deal in cheap or in dear commod- 
ities, and even here the size of his available capital and 
other circumstances have something to say. Therefore it de- 
pends wholly on the degree of development of the capitalist 
mode of production, not on the good will of the merchant, 



362 Capitalist Production. 

what course he shall follow in this. A purely commercial 
company like the old Dutch East India Company, which had 
a monopoly of production, could imagine that it would be 
able to continue a method, adapted at best to the beginnings 
of capitalist production, under entirely changed conditions.'*^ 
The following circumstances, among others, help to main- 
tain that popular prejudice, which, like all wrong conceptions 
of profit, etc., arise out of the views of pure commerce : 

1) Phenomena of competition, which, however, concern 
merely the distribution of mercantile profit among the indi- 
vidual merchants in their capacity as shareholders in the total 
merchant's capital; such as the underselling of other mer- 
chants by one of them for the purpose of beating his competi- 
tors. 

2) An economist of the caliber of Professor Roscher of 
Leipsic may still imagine that a change in the selling prices 
may be brought about by considerations of " prudence and 
humanity," instead of being due to a revolution in the mode 
of production itself. 

3) If the prices of production fall on account of an in- 
creased productivity of labor, and if consequently the selling 
prices also fall, then the demand, and with it the market 
prices, often rise even faster than the supply, so that the sell- 
ing prices yield more than the average profit. 

4) A merchant may reduce his selling price (which 
amounts after all to no more than a reduction of the current 
profit which he adds to the price) in order to turn over a 
large capital more rapidly in his business. 

All these things concern only competition between mer- 
chants themselves. 

We have already shown in volume I, that the high or low 

'"■ " Profit, on the general principle, is always the same, whatever be price; 
keeping its place like an incumbent body on the swelling or sinking trade. As, 
therefore, prices rise, a tradesman raises prices; as prices fall, a tradesman lowers 
price." (Corbet, An Inquiry into the Causes, etc., of the Wealth of Individuals. 
London, 1845, p. 15.) Here, as in the text of our work generally, we speak only 
of ordinary commerce, not of speculation. The analysis of speculation, as well as 
everything else pertaining to the division of mercantile capital, falls outside of 
the circle of our inquiry. " The profit of trade is a value added to capital which 
is independent of price, the second (speculation) is founded on the variation in 
the value of capital or in price itself." (L. c, p. 13.) 



The Prices. 363 

level of the prices of commodities determines neither the mass 
of surplus-value produced by a certain capital nor the rate 
of surplus-value; it is merely true that, according to the rel- 
ative quantity of commodities produced by a certain quan- 
tity of labor, the price of the individual commodity, and with 
it the share of surplus-value falling upon this price, is greater 
or smaller. The prices of every quantity of commodities 
are determined, so far as they correspond to their values, by 
the total quantity of labor incorporated in these commodities. 
If much labor is incorporated in few commodities, then the 
price of the individual commodities is low and the surplus- 
value contained in them is small. ISTo matter in what propor- 
tion the labor incorporated in a commodity is divided into 
paid and unpaid labor, and no matter what portion of its 
price may represent surplus-value, it has nothing to do with 
the total quantity of this labor, nor, consequently, with its 
price. On the other hand, the rate of surplus-value does not 
depend on the absolute magnitude of the surplus-value con- 
tained in the price of the individual commodity, but on its 
relative magnitude, on its proportion to the w^ages contained in 
the same commodity. The rate of surplus-value may there- 
fore be large, while the absolute magnitude of the surplus- 
value in each individual commodity may be small. This ab- 
solute magnitude of the surplus-value in each commodity de- 
pends in the first place on the productivity of labor, and only 
in the second place on its division into paid and unpaid labor. 

Moreover, in the case of the commercial selling price, the 
price of production is a condition determined by external cir- 
cumstances. 

The high prices of commerce in former times were due \ 
1) to the dearness of the prices of production, in other words, \ 
to the unproductivity of labor; 2) to the absence of an aver- j 
age rate of profit, which enabled the merchant's capital to ab- 1 
sorb a much larger quantity of the surplus-value than would ; 
have fallen to its share, had the capitals enjoyed a greater / 
general mobility. The cessation of this condition, in both of / 
its aspects, is due to the development of the capitalist mode/ 
of production. / 



364 Capitalist Production. 

The turn-overs of merchant's capital vary in length, their 
numbers consequently are greater or smaller, in different lines 
of commerce. Within the same line of commerce, the turn- 
over is more or less rapid in different phases of the economic 
cycle. HoM^ever, an average number of turn-overs, vt^hich is 
found by experience, takes place. 

We have already noted, that the turn-over of merchant's 
capital differs from that of industrial capital. This follows 
from the nature of the case ; one single phase in the turn- 
over of industrial capital appears as a complete turn-over of 
some independently constituted merchant's capital, or of a 
part of some such merchant's capital. This turn-over has 
also a different relation to the determination of profit and 
prices. 

In the case of the industrial capital, its turn-over expresses 
on one hand the periodicity of reproduction, and on it de- 
pends the mass of commodities, which may be thrown on the 
market in a certain period. On the other hand, its time of 
circulation forms a barrier, which is elastic and exerts more 
or less of a restraint on the creation of value and surplus- 
value, because it exerts a pressure on the volume of the proc- 
ess of production. The turn-over therefore acts as a deter- 
mining element on the mass of annually produced surplus- 
value, and thus helps to determine the average rate of profit, 
but it acts as a negative, not as a positive element. For the 
merchant's capital, however, the average rate of profit exists 
as a given magnitude. The merchant's capital does not di- 
rectly participate in the creation of value or su|rplus-value, 
and it participates in the formation of an average rate of 
profit only to the extent that draws a dividend, in propor- 
tion to its size in the total social capital, out of the mass of 
profit produced by the industrial capital. 

The greater the number of turn-overs of a certain industrial 
capital is under the conditions described in Volume II, Part 
II, the greater is the mass of profits created by it. 'Row, the 
formation of an average rate of profit distributes the total 
profit among the different capitals, not in proportion to their 
actual participation in its direct production, but in proportion 



Turn-over of Merchant's Capital. 365 

to the aliquot parts which they constitute in the total capital, 
that is, in proportion to their magnitudes. But this does not 
alter the essence of the matter. The greater the number of 
turnovers of the industrial capital as a whole is, the greater is 
the mass of profits, the mass of annually produced surplus- 
value, and therefore the rate of profit, always assuming other 
circumstances to remain unchanged. It is different with mer- 
chant's capital. For it, the rate of profit is a given magnitude, 
determined on one hand by the mass of profit produced by the 
industrial capital, on the other hand b}'' the relative magnitude 
of the total merchant's capital, by its quantitative relation to 
the sum of capital advanced in the processes of production 
and circulation. The number of its turn-overs does indeed 
exert a determining influence on its relation to the total social 
capital, or on the relative magnitude of the total merchant's 
capital required for the circulation. For it is evident that 
the absolute magnitude of the total merchant's capital and the 
velocity of its turn-over are inversely proportioned to one 
another. But, all other circumstances remaining the same, 
the relative magnitude of the merchant's capital, or its aliquot 
proportion in the total social capital, is determined by its ab- 
solute magnitude. If the total social capital is 10,000, and 
the merchant's capital 1,000, then it is yq- of the total ; if the 
total capital is 1,000, and the merchant's capital 100, it is 
again pg-. To that extent, the absolute magnitude of the mer- 
chant's capital may vary, while its relative magnitude in the 
total social capital remains the same. But in the present 
case, we assume that its relative magnitude of yq- of the total 
social capital is given. This relative magnitude, again, is de- 
termined by its turn-over. If it is turned over rapidly, its 
absolute magnitude will be 1,000 in the first case, and 100 in 
the second, so that its relative magnitude will be y-Q-. But if 
it is turned over more slowly, then its absolute magnitude may 
be 2,000 in the first case, and 200 in the second ease. Then 
its relative magnitude will have increased from -^-q to ^ of 
the total social capital. Circumstances which reduce the 
average turn-over of merchant's capital, for instance, the de- 
velopment of means of transportation, reduce to that extent the 



2^()S Capitalist Production. 

absolute magnitude of mercliants' capital and thereby in- 
crease the average rate of profit. The opposite takes place, 
if things are reversed. A developed mode of capitalist pro- 
duction, compared to previous conditions, exerts a tv^^ofold in- 
fluence on merchants' capital. In the first place, the same 
quantity of commodities is turned over v^ith a smaller mass of 
actually functioning merchants' capital; for the proportion 
of the merchants' capital to industrial capital is reduced by the 
more rapid turn-over of merchants' capital and the greater ve- 
locity of the process of reproduction that is its basis. On the 
other hand, the development of the capitalist mode of produc- 
tion turns all production into a production of commodities, 
which puts all products into the hands of the agents of circu- 
lation. This is so much more notable, as under previous 
modes of production, which produced things on a small scale, 
a large portion of the producers sold their goods directly to 
the consumers or worked for their personal orders, leaving 
out of consideration that mass of products, which were im- 
mediately consumed by the producer himself, and that mass 
of services, which were performed in natura. While, there- 
fore, under former methods of production, commercial cap- 
ital represented proportionately a larger share of the commod- 
ity-capital which it turned over, it was. 

1) absolutely smaller, because a disproportionately smaller 
part of the total product was produced in the shape of com- 
modities, passed as commodity-capital into circulation, and 
fell into the hands of merchants. It was smaller, because the 
commodity-capital was smaller. But it was proportionately 
larger, not only because its turn-over was slower, and because 
it constituted a larger portion of the mass of commodities 
turned over by it, but also because the price of this mass of 
commodities, and consequently the merchants' capital to be ad- 
vanced for it, were greater than under capitalist production 
on account of a lower productivity of labor, so that the same 
value was incorporated in a smaller mass of commodities. 

2) IS^ot alone is a larger mass of commodities produced on 
the basis of capitalist production (taking account also of the 
reduced value of these commodities), but the same mass of 



Turn-over of Merchant's Capital. 367 

products, for instance, of corn, also becomes to a greater ex- 
tent commodity, that is, more and more of the product be- 
comes an object of commerce. As a consequence, not only the 
mass of the merchants' capital, but of all capital invested in 
the circulation, increases, such as capital invested in marine 
shipping, railroading, telegraph business, etc. ; 

3) However, there is one point of view, which belongs in 
the discussion of " competition among capitals," namely : 
The merchants' capital, which is not serving in any function, 
or serving only in part, grows with the progress of the capital- 
ist mode of production, with the facility of its investment 
in retail trade, with the increase of speculation, and with the 
superfluity of released capital. 

But, assuming the relative magnitude of the merchants' 
capital in proportion to the social capital to be given, the 
difference of the turn-overs in the various lines of commerce 
does not affect the magnitude of the total profit falling to the 
share of the total merchants' capital, nor the general rate of 
profit. The profit of the merchant is determined, not by the 
mass of the commodity-capital turned over by him, but by the 
magnitude of the money-capital advanced by him for the pro- 
motion of this turn-over. If the yearly general rate of profit 
is 15%, and the merchant advances 100 p.st., which he turns 
over once a year, then he will sell his commodities at 115. If 
his capital is turned over five times per year, then he will sell 
a commodity-capital of 100 purchase price five times per 
year at 103, which will amount in one year to a commodity- 
capital of 500 sold 515. This constitutes the same annual 
profit of 15% on his advanced capital of 100 as before. If 
this were not so, then the merchants' capital would yield a 
much higher profit in proportion to the number of its turn- 
overs than the industrial capital, and this would be a con- 
tradiction to the law of the average rate of profit. 

It follows, then, that the number of turn-overs of mer- 
chants' capital in the various lines of commerce affects the 
mercantile prices of commodities directly. The amount of 
the mercantile addition to the price, the addition of that 
aliquot part of the mercantile profit of a given capital which 



368 Capitalist Production. 

falls upon the price of production of the individual commodi- 
ties, stands in an inverse ratio to the number of turn-overs, or 
the velocity of turn-over, of the merchants' capitals in the va- 
rious lines of commerce. If a certain merchants' capital is 
turned over five times per year, it will add to a commodity- 
capital of its own value but one-fifth of tlie profit, which an- 
other merchants' capital of the same value, which is turned 
over but once per year, will add to a commodity-capital of the 
same value. 

This modification of selling prices by the average time of 
turn-over of the capitals in different lines of commerce amounts 
to this: In proportion to the velocity of turn-over, the same 
mass of profits, which is determined by the annual rate of 
average profit for any given magnitude of merchants' capital, 
independently of tlie specific commercial character of the 
operations of this capital, is differently distributed over 
masses of commodities of the same value. For instance, if 
the merchants' capital is turned over five times per year, it 
will add i^ = 3% to the price of commodities, and if turned 
over once per year, it will add 15% to their price. 

The same percentage of the commercial profit in different 
lines of industry, according to the proportions of their times of 
turn-over, increases the selling prices of commodities by differ- 
ent percentages calculated on their values. 

On the other hand, in the case of industrial capital, the time 
of turn-over does not affect in any way the magnitude of the 
value of the individual commodities produced during that 
time, although it does affect the mass of value and surplus- 
value produced in a given time, because it affects the mass of 
exploited labor. This is indeed concealed and seems to be 
otherwise, as soon as one has an eye only to the prices of 
production. But this is due solely to the fact that, according 
to the previously analysed laws, the prices of production of the 
various commodities deviate from their values. As soon as we 
look upon the process of production in its totality, upon the 
mass of commodities produced by the entire industrial capital 
of society, we shall find the general law vindicated. 

We see then, that a closer inspection of the influence of the 



Turn-over of Merchant's Capital. 369 

time of turn-over on the formation of the values leads us back, 
in the ease of the industrial capital, to the general law and to 
the basis of political economy, to-wit, the law that the values 
of commodities are determined by the labor time contained 
in them. But the influence of the turn-overs of merchants' 
capital on the mercantile prices reveals phenomena, which, 
without a very lengthy analysis of the connecting links, seem 
to point to a purely arbitrary fixing of prices. They seem to 
be fixed purely on the intention that a certain capital should 
make a definite quantity of profits in one year. Particularly 
it looks, on account of this influence of the turn-overs, as 
though the process of circulation determined by itself the 
prices of commodities, independently, within certain limits, 
of the process of production. All superficial and false con- 
ceptions of the process of reproduction as a whole arise from 
the point of view of merchants' capital and from the concep- 
tions, which its peculiar movements call forth in the minds 
of the agents of circulation. 

If it is realised — and the reader will have realised it to 
his gTeat dismay — that the analysis of the actual internal 
interconnections of the capitalist process of production is a 
very complicated matter and a very protracted work; if it is 
a work of science to resolve the visible and external movement 
into the internal actual movement, then it is understood as a 
matter of course, that the conceptions formed about the laws of 
production in the heads of the agents of production and cir- 
culation will differ widely from these real laws and will be 
merely the conscious expression of the apparent movements. 
The conceptions of a merchant, a stock gambler, a banker, are 
necessarily quite perverted. Those of the manufacturer are 
vitiated by the acts of circulation, to which their capital is sub- 
ject, and by the compensation of the general rate of profit. '^^ 

Competition likewise plays a completely perverted role in 
these heads. If the limits of value and surplus-value are 

*^ It is a very naive, but also very correct remark that " Surely the fact that 

' one and the same commodity may be had from different sellers at considerably 

different prices is frequently due to mistakes of calculation." (Feller and Older- 

mann, Das Game der kaufmannisclien of Arithmetik, 7. Aufl., 1859.) This shows 

how purely theoretical, that is abstract, the determination of prices becomes. 

X 



370 Capitalist Production. 

given, then it is easy to understand, in what manner the com- 
petition of capitals will transform values into prices of pro- 
duction and further into mercantile prices, and surplus-value 
into average profit. But without these limits, we cannot see 
any reason at all, why competition should reduce the average 
rate of profit to such and such a level instead of some other, 
should make it 15% instead of 1,500%. Competition at best 
can only reduce the rate of profit to one and the same level. 
But it does not contain any element, by which this level could 
be determined. 

From the point of view of merchants' capital, the turn-over 
itself takes on the guise of a determining element of prices. 
On the other hand, while the velocity of the turn-over of in- 
dustrial capital, in so far as it enables a certain industrial 
capital to exploit more or less labor, exerts a determining and 
limiting influence on the mass of profit and thus on the aver- 
age rate of profit, this rate of profit exists as an external fact 
for the merchants' capital, and the internal connection of this 
rate with the production of surplus-value is entirely obliter- 
ated. If the same industrial capital, under otherwise equal 
circumstances, particularly with the same organic composi- 
tion, is turned over four times per year instead of twice, it 
produces twice as much surplus-value and, consequently, profit. 
And this becomes palpable, as soon and so long as this capital 
has the monopoly of that improved mode of production, to 
which it owes its accelerated turn-over. Vice versa, differ- 
ences in the times of turn-over in different lines of commerce 
manifest themselves in such a way that the profit made on the 
turn-over of some given commodity-capital is in an inverse ra- 
tio to the number of turn-overs of the money-capital which 
turns this commodity-capital over. Small profits and quick 
returns appears particularly to the shopkeeper as a principle, 
which he follows on principle. 

For the rest, it is a matter of course, that this law of turn- 
overs of merchants' capital holds good in each line of com- 
merce only for the average of turn-overs made by the entire 
merchants' capital invested in each particular line, and always 
without a consideration of any succession of alternating and 



Turn-oz'cr of Merchant's Ca/yifal. 371 

mutually compensatiug turn-overs of longer or shorter dura- 
tion. The capital of A, who deals in the same line as B-, may 
make more or less than the average number of turn-overs. 
This does not alter the turn-over of the total mass of mer- 
chants' capital invested in this line. But this is of decisive 
moment for the individual merchant or shopkeeper. He 
makes in this case an extra profit, just as the industrial cap- 
italists make extra profits, if they produce under conditions 
more favorable than the average. If competition compels 
him, he can sell cheaper than his competitors v^ithout lower- 
ing his profit below the average. If the conditions, which 
would enable him to turn his capital over more rapidly, are 
themselves for sale, such as a favorable location of the shop, 
he can pay extra rent for it, that is to say, a portion of his 
surplus-profit is converted into ground rent. 



CHAPTEK XIX. 

FINANCIAL CAPITAL. 



The purely technical movements performed by money in the 
process of circulation of industrial capital, and, as we may 
now add, of commercial capital, which assumes a part of the 
circulation movement of industrial capital as its own peculiar 
movement, — these movements, if individualised into an inde- 
pendent function of some particular capital that performs 
nothing but just this service, convert a capital into financial 
capital. In that case, one portion of the industrial capital, 
and of commercial capital, persists not only in the form of 
money, of money capital in general, but as money-capital, 
which performs only these technical functions. A definite 
part of the total social capital separates from the rest and in- 
dividualises itself in the form of money-capital, whose capi- 
talist function consists exclusively in performing the financial 
operations for the entire class of industrial and commercial 
capitalists. As in the case of the commercial capital, so in 
that of financial capital a portion of the industrial capital in 
process of function in circulation separates from the rest and 



372 Capitalist Production. 

performs these operations of the process of reproduction for 
all the other capital. These movements of such money-capi- 
tal, then, are once more merely movements of an individual- 
ised part of industrial capital in the process of reproduction. 

Capital appears as the first and last point of this movement 
only to the extent that capital is nev^ly invested, as happens in 
accumulation. But for every capital, which is already in 
process, this first and last point appear merely as points of 
transit. To the extent that industrial capital, from the mo- 
ment of its exit from the sphere of production to that of its re- 
turn to it, passes through the metamorphosis C — M — C, 
M represents merely the final result of one phase of this met- 
amorphosis and becomes at once the starting point of its sup- 
plementing second phase, as we have already seen in the dis- 
cussion of the simple circulation of commodities. And al- 
though the C — M of industrial capital signifies always 
M — C — M for the commercial capital, nevertheless the ac- 
tual process for this last named capital, once that it has be- 
come engaged, is also C — M — C. But the commercial cap- 
ital passes continually through and simultaneously through 
the acts C — M and M — C, that is to say, there is not only 
one capital in the stage C — M, while another is in the stage 
M — C, but the same capital buys continually and sells con- 
tinually at the same time, on account of the continuity of the 
process of production. It is continually and simultaneously 
in both stages. While one of its parts is converted into 
money, to be reconverted later into commodities, another is 
simultaneously converted into commodities, to be reconverted 
into money. 

Whether the money serves here as a means of circulation or 
of payment, depends on the form of the exchange of commod- 
ities. In both cases, the capitalist has to pay out money con- 
tinually to many persons, and to receive money continually 
from many persons. This purely technical labor of paying 
money and receiving money constitutes an employment by it- 
self, which necessitates the making of balances, the balancing 
of accounts, so far as money serves as a means of payment. 
This labor belongs to the expenses of circulation, it does not 



Financial Capital. 373 

create any values. It is abbreviated by being organised as a 
special department of agents, or capitalists, who perform this 
work for all the rest of the capitalist class. 

A definite portion of the capital must be continually avail- 
able as a hoard, as potential money-capital. It constitutes 
a reserve of means of purchase, a reserve of means of pay- 
ment, unemployed capital in the form of money waiting to be 
put to work. And one portion of the capital continually re- 
turns in this form. This requires not only the collecting, 
paying, and bookkeeping operations, but also the storing of a 
hoard, which constitutes an operation by itself. This work 
consists indeed in a continual conversion of a hoard into 
means of circulation and means of payment, and its restora- 
tion to the form of a hoard by means of money secured through 
sales and due payments. This continuous movement of that 
part of capital, which exists in the form of money, separated 
from the function of capital itself, this purely technical func- 
tion causes its own labors and expenses, which belong to the 
expenses of circulation. 

The division of labor brings it about, that these technical 
operations, wdiich are conditioned on the functions of capital, 
should be perforined as much as possible for the entire capital- 
ist class by one class of agents, or capitalists, into whose 
hands it is concentrated as their exclusive function. We have 
here, as in the case of commercial capital, a division of labor 
in a twofold sense. It becomes a special business, and be- 
cause it is performed as a special business for the money- 
mechanism of the whole class, it is concentrated and performed 
on a large scale. And then a further division of labor takes 
place within this special business, on one hand by a separa- 
tion into various independent lines, on the other by a seg- 
mentation of the work v/ithin each office of these special lines. 
Large offices, many bookkeepers and cashiers, far going di- 
vision of labor, disbursing of money, receiving of money, bal- 
ancing of accounts, keeping of current accounts, storing of 
money, etc., all these things, separated from the acts that 
necessitate these technical operations, make of the capital 
advanced for these functions a financial capital. 



374 Capitalist Production. 

The various operations, whose individualisation gives rise 
to special lines of financial business, follow from the different 
capacities of monej itself and from its different functions, 
through which capital in its money-form must likewise pass. 

I have pointed out on a previous occasion, that the money 
business in general developed originally from an exchange of 
products between different communes. ^^ 

The financial business, the trade with money as a commod- 
ity, developed first out of international commerce. As soon 
as different national coins exist, the merchants buying in for- 
eigii countries must exchange their national coins into foreign 
coins, and vice versa, or exchange different coins for uncoined 
pure silver or gold as international money. This gives rise to 
the business of money-exchange, which is one of the primitive 
foundations of modern financial business.*^ Out of it de- 
veloped the modern banks of exchange, in which silver (or 
gold) serve as world money — now called bank money or 
commercial money — as distinguished from current money. 

** Critique of Political Economy, p. 53. 

** " The great differences of coins themselves, as concerns their grain, and their 
coinage by many privileged princes and towns, necessitated the establishment of 
a business, which should enable merchants to use local money wherever any com- 
pensation between different coins was necessary. In order to be "able to make cash pay- 
ments, merchants who traveled to a foreign market provided themselves with 
uncoined pure silver, or perhaps with gold. In the same way they exchanged 
the money received by them in local markets for uncoined silver or gold, when 
they prepared to return home. The business of exchanging money, the exchange 
of uncoined precious metals for local coins, and vice versa, thus became a wide- 
spread and paying business." (Hiillmann, St&dtewesen des Mittelalters. Bonn, 
1826-29, I, p. 4.37.) " Banks of exchange do not owe their name to the fact that 
they issue tills of exchange, . . . but to the fact that they used to exchange 
coins. Long before the establishment of the Amsterdam Bank of Exchange in 
1609, there existed in the Dutch merchant towns money changers and exchange 
houses, even exchange banks. . . . The business of these money changers 
consisted in exchanging the numerous varieties of coin, that were brought into 
the country by foreign traders, for the current coin of the realm. Gradually their 
circle of activity extended. . . . They became the bankers and cashiers of 
m,odern times. But the government of Amsterdam saw a danger in the combi- 
nation of the cashier business with the exchange business, and in order to meet 
this danger, it was resolved to establish a large institution, which should be able 
to perform both the cashier and the exchange operations. This institution was 
the famous Amsterdam Bank of Exchange of 1609. In like manner, the exchange 
banks of Venice, Genoa, Stockholm, Hamburg, owe their origin to the continual 
necessity of changing money. Of all these, the Hamburg Exchange is the only 
one that is still doing business, because the need of such an institution is still felt 
in that merchants' town, which has no Mint of its own. Etc." (S. Vissering, 
Handboek van Praktische Staathuishoudkunde. Amsterdam, 1860, I, 247.) 



Financial Capital. 375 

The business of money-exchange, so far as it consists 
merely of notes of payment to travelers from one money-ex- 
changer in one country to another in another country, devel- 
oped as early as Roman and Grecian times out of tho simple 
money-exchange. 

The trade with gold and silver as commodities (raw mate- 
rials for the making of articles of luxury) forms the primi- 
tive basig of bullion trade, or of that trade, which promotes 
the functions of money as world money. These, functions, 
as previously explained (Volume I, chapter III, 3c), are two- 
fold : A currency back and forth between the various na- 
tional spheres of circulation for the purpose of balancing the 
international payments and for j)erforming the migrations of 
capital in quest of interest; simultaneously with this move- 
ment, there is a movement of precious metals from their 
sources of production across the world market and a distri- 
bution of their supply over the various national spheres of cir- 
culation. In England, the goldsmiths still served as bankers 
during the greater part of the lYth century. The way in 
which the balancing of international accounts in the money 
trade is further developed, is not discussed here, any more 
than any points referring to the business of dealing in val- 
uable papers, in short, we leave out of consideration all special 
forms of the credit system, since this does not yet concern us 
here. 

In the shape of world money, national money strips off its 
local character; one national money is expressed in another, 
and thus all of them are finally reduced to their contents in 
gold or silver, while these two metals, being the two commodi- 
ties circulating as world money, are simultaneously reduced to 
their mutual ratios, which change continually. The money 
trader makes this intermediate business his special occupation. 
Money changing and bullion trading are thus the primitive 
forms of the money trade, and they arise from the twofold 
functions of money as national money and world money. 

The capitalist process of production, and commerce in gen- 
eral, even under precapitalist methods, imply: 

1) The accumulation of money in the shape of a hoard, that 



'^j^ Capitalist Production. 

is, in the present case, the accumulation of that part of capi- 
tal, which must always be on hand in the form of money, as 
a reserve fund of means of payment and means of purchase. 
This is the first form of a hoard, such as it reappears under 
the capitalist mode of production, and as it forms in general 
with the development of merchants' capital, at least for the 
purposes of this capital. These remarks apply to national as 
well as international circulation. This hoard is in continu- 
ous flux, pours ceaselessly into circulation, and returns unin- 
terruptedly from it. The second form of a hoard is nov/ thai 
of fallow, unemployed, capital in the form of money, including 
newly accumulated and not yet invested money-capital. Tlie 
functions first required by this formation of a hoard are those 
of safekeeping, bookkeeping, etc. 

2) This is connected by an expenditure of money in buying, 
its reception on selling, making and receiving of payments, 
balancing of payments, etc. The money dealer performs all 
these services at first as a simple cashier of the merchants and 
industrial capitalists.'*^ 

*^ " The institution of cashiers has probably nowhere preserved its original and inde- 
pendent character so pure as in the Dutch merchant towns (see on the origin of 
the cashier business in Amsterdam, E. Lusac, Hollands Rykdoin, part III). Its 
functions partly coincide with those of the old Amsterdam Bank of Exchange. 
The cashier receives from the merchants, who employ his services, a certain 
amount of money, for which he opens a ' credit ' for them in his books. Further- 
more they send him their due bills, which he collects for them and credits to 
their account. On the other hand, he makes payments on their notes (Kassiers 
brief jes) and charges their accounts with their current bills. He charges a small 
provision for these credits and debits, which yields him a corresponding remunera- 
tion for his labor only by the amount of business, which he can turn over be- 
tween them. If payments are to be balanced between two merchants, who both 
deal with the same cashier, then such payments are simply settled by booking 
them mutually, while the cashiers balance their mutual claims from day to day. 
The cashier's business, then, consists at bottom of this promotion of paj'ments. 
Therefore it excludes industrial enterprises, speculations, and the opening of 
blank credits; for it must be a rule in this business that the cashier makes no 
payment to any one keeping an account with him above his credit." (Vissering, 
1. c, p. 134.) On the banking associations of Venice: " The requirements and 
locality of Venice, where the carrying of cash is more inconvenient than in other 
places, induced the large merchants of that town to found banking associations 
under due safeguards, supervision, and management. The members of such an 
association deposited certain sums, on which they drew checks for their creditors, 
whereupon the paid sum was deducted on the page of the debtor in the book kept 
for that purpose and added to the sum, which was credited in the same book to 
the creditor. This is the first beginning of the socalled giro banks. These asso- 
ciations are indeed old. But if they are attributed to the i2th century, they are 



Financial Capital. 377 

Dealing in money is fully developed, even in its first stages, 
as soon as its ordinary functions of lending and borrowing are 
supplemented by the credit business. Of this more in the fol- 
lowing part, which deals Avith interest-bearing capital. 

The bullion trade itself, the transfer of gold or silver from 
one country to another, is merely the result of the trade in com- 
modities. It is determined by the quotations of bills of ex- 
change, which express the stand of the international payments 
and of the rate of interest on the different markets. The 
bullion trader as such acts but as an intermediary between re- 
sults. 

In discussing the way, in which the movements and forms 
of money develop out of the simple circulation of commodi- 
ties, we have seen (Vol. I, chap. Ill), that the movements of 
the mass of money circulating as a means of purchase and 
payment are determined by the metamorphosis of commodi- 
ties, by the volume and velocity of this metamorphosis. And 
we know now, that this metamorphosis is itself but a phase in 
the entire process of reproduction. As for the movement of 
the raw materials of money — gold and silver — from their 
places of production, it resolves itself in a direct exchange of 
commodities, an exchange of gold and silver as commodities 
for other commodities. Hence it is as much a phase of the 
exchange of commodities as the securing of iron or other 
metals by means of exchange. And so far as the movements 
of precious metals on the world-market are concerned (v^'e 
leave aside at this point the consideration of their movements 
to the extent that they express the transfer of capital by loans, 
a transfer, which takes place also in the shape of commodity- 
capital), they are quite as much determined by the interna- 
tional exchange of commodities as the movements of money 
as a national means of purchase and payment are determined 
by the exchange of commodities on the home market. The 
emigrations and immigrations of precious metals from one na- 
tional sphere to another, which are caused by a depreciation 
of national coins, or by a double standard, are extraneous to 

confounded with the State Loan Institute, which was established in 1171." (Hiill- 
mann, 1. c. 550.) 



378 Capitalist Production. 

the circulation of money as such and represent merely correc- 
tions of deviations brought about arbitrarily by state de- 
crees. And finally, as concerns the formation of hoards, "which 
constitute reserve funds for means of purchase and payment, 
either for the home trade or for foreign trade, and likewise 
of hoards, which represent merely a form of capital tempora- 
rily unemployed, they are both necessary precipitates of the 
process of circulation. 

Just as the entire circulation of money, in its volume, its 
forms, and movements, is purely a result of the circulation 
of commodities which in its turn represents from the capital- 
ist point of view only the process of circulation of capital (in- 
cluding the exchange of capital for revenue, and of revenue 
for revenue, so far as the expenditure of revenue is realised 
in retail trade), so it is a matter of course, that the trade in 
money does not promote merely the circulation of money, a 
mere result and phenomenon of the circulation of commodi- 
ties. This circulation of money itself, as a phase in the circu- 
lation of commodities, is a fundamental requisite for the trade 
in money. This trade promotes merely the technical opera- 
tions of money-circulation, concentrating, abbreviating, sim- 
plifying them. The trade in money does not form the hoards, 
but supplies the technical means by which the formation of 
hoards may be reduced to its economical minimum (so far as 
it is voluntary, that is, so far as it is not an expression of un- 
employed capital or of disturbances of the process of reproduc- 
tion). For if the reserve funds of means of purchase and 
payment are managed for the capitalist class as a whole, they 
need not be so large as they would have to be, did each capi- 
talist manage his own. The trade in money does not buy the 
precious metals, but merely promotes their distribution, as 
soon as the trade in commodities has bought them. The trade 
in money facilitates the squaring of balances, so far as money 
serves as a means of payment, and reduces by the artificial 
mechanism of these compensations the amount of money re- 
quired for this purpose. But it determines neither the con- 
nections, nor the volume, of tlie mutual pa}nnents. For in- 
stance, the bills of exchange and checks, which are exchanged 



Financial Capital. 379 

for one another in banks and clearing houses, reflect quite in- 
dependent transactions and are the results of real operations. 
It is merely a question of a better technical compensation of 
these results. So far as money serves as a means of purchase, 
the volume and number of purchases and sales are quite inde- 
pendent of the money trade. This trade cannot do anything 
but abbreviate the technical operations that go with buying 
and selling, and by this means it is enabled to reduce the 
amount of cash money required to turn the commodities over. 

The money trade in its pure form, which we consider here, 
that is, the money trade not complicated by the credit system, 
is concerned only with the technique of a certain phase of the 
circulation of commodities, namely with the circulation of 
money and the different functions of money following from its 
circulation. 

This distingTiishes the money trade essentially from the 
trade in commodities, which promotes the metamorphosis of 
commodities and their exchange, or which gives even to this 
process the aspect of a process of a certain capital separated 
from the industrial capital. While, therefore, the commer- 
cial capital has its own form of circulation, M — C — M, in 
which the commodity changes hands twice and thereby re- 
covers the money, in distinction from C — M — C, in which 
the money changes hands twice and thereby promotes the ex- 
change of commodities, there is no such special form of circu- 
lation, which can be demonstrated in the case of financial cap- 
ital. 

To the extent that money-capital is advanced by a separate 
class of capitalists for the technical promotion of the circula- 
tion of money — a capital representing on a reduced scale the 
additional capital, which the merchants and industrial capital- 
ists must otherwise advance themselves for these purposes — 
the general form of capital, M — M', is found also here. By 
the advance of M, the advancing capitalist secures M -]- AM. 
But the promotion of the transaction M — M' does not con- 
cern itself in this case with the objective materials, but only 
with the technical processes of this metamorphosis. 

It is evident, that the mass of money-capital, with which the 



380 Capitalist Production. 

money dealers liave to operate, is the money-capital of the mer- 
chants and industrial capitalists in process of circulation, and 
that the operations of the money dealers are merely those orig- 
inally performed by the merchants and industrial capitalist. 

It is equally evident, that the profit of the money dealers is 
nothing but a deduction from the surplus-value, since they 
are operating merely with already realised values (even when 
they have been realised in the form of creditors' claims). 

As in the trade with commodities, so in that with money a 
duplication of functions takes place. For a portion of the 
technical operations connected with the circulation of money 
must be carried out by the dealers and producers of commodi- 
ties themselves. 



CHAPTEK XX. 



HISTORICAL DATA CONCEENIJSTG MERCHANTS CAPITAL. 

The particular form, in which the commercial capital and 
financial capital accumulate money, will be discussed in the 
next part of this volume. 

From what has gone before it follows as a matter of course 
that nothing can be more absurd than to consider merchants' 
capital, whether in the shape of commercial or of financial 
capital, as some particular kind of industrial capital, such as 
that invested in mining, agriculture, stock raising, manufac- 
ture, transportation, etc., which constitute side lines of indus- 
trial capital formed by division of social labor and thus differ- 
ent spheres for its investment. The simple observation, that 
every industrial capital, when in the circulation phase of its 
process of reproduction, performs in the shape of commodity- 
capital and money-capital the very same functions, which ap- 
pear as exclusive functions of the two forms of merchants' 
capital, should make such a crude conception impossible. On 
the other hand, in commercial and financial capital the differ- 
ences between the productive nature of industrial capital and 
its functions in the sphere of circulation are independently in- 



_ Historical Data. 381 

dividualised, by transferring definite forms and functions as- 
sumed momentarily by industrial capital into independent 
forms and functions of separate portions of capital perma- 
nently tied up in circulation. A changed form of industrial 
capital is widely different from distinctions between produc- 
tive capitals following from tbe nature of the various lines of 
industry. 

Aside from the brutality with which the economist ordi- 
narily handles distinctions of form, in which he is interested 
only so far as their material side is concerned, the vulgar econ- 
omist is influenced by two other reasons in his violation of 
distinctions. There is, in the first place, his incapability 
-to explain the peculiar nature of mercantile profit. In the 
second place, he writes for the apologetic purpose of proclaim- 
ing his opinion, that the process of production by its very na- 
ture, is the source of such forms as commodity-capital and 
money-capital, or later of merchants' capital and financial 
capital, instead of showing that they are due to the specific 
form of capitalist production, which is conditioned above all 
on the circulation of commodities and therefore of money. 

If commercial capital and financial capital do not differ 
from the production of grain any more than this differs from 
stock raising and manufacture, then it is evident that produc- 
tion and capitalist production are one and the same thing, 
and that especially the distribution of the social products 
among the members of society for the purpose of productive 
or individual consumption need no more be promoted by mer- 
chants and bankers than the consumption of meat by stock 
raising or that of clothes by their manufacture.^*^ 

^^ Smart Mr. Roscher has figured out that, since certain people designate trade 
as a mediation between producers and consumers, " one " might just as well 
designate production itself as a mediation of consumption (between whom?), and 
this implies, of course, that the merchants' capital is as much a part of the 
productive capital as agricultural and industrial capital. In other words, because 
I can say, that man can mediate his consumption only by means of production 
(and he has to do this even without getting his education at Leipsic), or that 
labor is required for the appropriation of the products of nature (which might be 
called a mediation), it follows, that a mediation arising from a specific form of 
production — a real mediation — has the same absolute character and rank of a 
necessity. The word mediation settles everything. Moreover, the merchants are 
not mediators between producers and consumers (leaving out of consideration con- 
sumers which do not produce), but mediators of the exchange of products of 



o 



82 Capitalist Production. 



The great economists, sucli as Smith, Ricardo, etc., are em- 
barrassed over mercantile capital as a special kind, since they 
analyse the basic form of capital, industrial capital, and take 
notice of capital of circulation (commodity-capital and money- 
capital) only to the extent that it is a phase in the process of 
reproduction of all capital. The rules concerning the forma- 
tion of value, profit, etc., which are directly deduced from an 
analysis of industrial capital, do not fit merchants' capital di- 
rectly. Therefore these economists leave merchants' capital 
entirely out of consideration and mention it only as a kind of 
industrial capital. Whenever they treat of it particularly, 
as Ricardo does in dealing with foreign commerce, they seek 
to demonstrate that it does not create any value (and conse- 
quently no surplus-value). But whatever is true of foreign 
commerce, applies also to home commerce. 



Hitherto we have considered merchants' capital merely from 
the point of view of the capitalist mode of production, and 
within its limits. However, not only commerce, but also mer- 
chants' capital, is older than the capitalist mode of produc- 
tion. In fact, it represents historically the oldest free exist- 
ence of capital. 

As we have already seen that the money trade and the cap- 
ital advanced for it require nothing for their existence but the 
presence of commerce on a large scale, and further of com- 
mercial capital, it is only the latter, which we have to con- 
sider here. 

Since commercial capital is tied up in the circulation, and 
since its function consists exclusively in promoting the ex- 
^ change of commodities, it follows that it requires no other 
condition for its existence — aside from undeveloped foniis 
arising from direct barter — but those indispensable for the 
simple circulation of money and commodities. Or rather, 
the circulation of money is the condition of its existence. 'No 
matter what may be the basis on which production is carried 
on, which throws its products into circulation as commodi- 

producers among themselves. They are but middle men in an exchange, which 
in a thousand cases takes place without them. 



Historical Data. 383 

tieS' — whether it be the basis of a primitive commune, or 
of slave production, or of small agricultural, small bourgeois, 
or capitalist — the character of the products as commodities 
is not altered, and as commodities they have to pass through 
the process of exchange and through the forms incidental to 
it. The extremes, between which merchants' capital acts as a 
mediator, exist for it as given propositions, just as they do for 
money and its movements. The only requisite is that these 
extremes should be present as commodities, regardless of 
whether production is wholly a production of commodities, or 
whether only the surplus of the independent producers over 
the immediate needs satisfied by their production is thrown on 
the market. The merchants' capital promotes only the move- 
ments of these extremes, these commodities, which are prem- 
ises of its own existence. 

The extent to which production ministers to commerce and 
supplies the merchants, depends on the mode of production. 
It reaches its maximum under a fully developed capitalist 
production, in which the product is primarily produced as a 
commodity, not for direct subsistence. On the other hand, 
on the basis of every mode of production, commerce promotes 
the production of surplus products destined for exchange, for 
the purpose of increasing the enjoyments of wealth of the 
producers (who are here understood to be the owners of the 
products). Commerce impregnates production more and more 
with the character of a production for exchange. 

The metamorphosis of commodities, their movements, con- 
sist, 1) materially, of an exchange of different commodities 
for one another; 2) formally, of a conversion of commodities 
into money by sale, and a conversion of money into commodi- 
ties by purchase. And the functions of merchants' capital 
resolve themselves into these functions of buying and selling 
commodities. It promotes merely the exchange of commodi- 
ties, which must be conceived at the outset as being something 
more than a bare exchange of commodities between direct pro- 
ducers. Under slavery, feudalism, vassalage, so far as prim- 
itive organisations are concerned, it is the slave holder, the 
feudal lord, the tribute collecting state, who are the owners 



384 Capitalist Production. 

and sellers of the products. The merchant buys and sells for 
many. In his hands are concentrated purchases and sales, 
and purchase and sale cease consequently to be dependent on a 
direct necessity of the buyer (as a merchant). 

But whatever may be the social organisation of the spheres 
of production, whose exchange of commodities the merchant 
promotes, his wealth exists always in the form of money and 
his money always serves as capital. Its form is always 
M — C — M'. Money, the independent form of exchange 
value, is his starting point, expansion of the exchange value 
his independent purpose. He occupies himself with the ex- 
change of commodities and the operations incidental to it, 
which are separated from production and performed by a non- 
producer, and this is merely a means to increase wealth and at 
that wealth in its most general social form, exchange value. 
His compelling motive and compelling end are the conversion 
of M into M + A M. The transactions M — C and C — M, 
which promote the act M — M', appear merely as stages of 
transition in this conversion of M into M + A M. This 
M — C — M' is the characteristic movement of merchants' 
capital which distinguishes- it from C — M — C, the ex- 
change of commodities between the producers tliemselves, 
which has for its ultimate end the exchange of use-values. 

To the extent that production is undeveloped, the money 
wealth will be concentrated in the hands of merchants, will 
appear in the specific form of merchants' wealth. 

Within the capitalist mode of production — that is, as soon 
as capital has seized hold of production and given to it a 
wholly changed and specific form — merchants' capital ap- 
pears merely as a capital with a specific function. But in 
all previous modes of production, and so much the more pro- 
duction ministers to the direct wants of the producers them- 
selves, merchants' capital appears as the capital which per- 
forms the function of capital. 

There is, then, no difiiculty in understanding how it is that 
that merchants' capital is the historical form of capital long 
before capital has subjected production to its control. Its 
existence and development to a certain level are themselves 



Historical Data. 385 

historical premises for the development of capitalist produc- 
tion. For they are, 1), premises for the concentration of 
moneyed wealth, and 2), the capitalist mode of production is 
conditioned on production for exchange, commerce on a large 
scale instead of with a few individual customers, and this re- 
quires also a merchant, who does not buy for the satisfaction 
of his own individual wants, but concentrates the transactions 
of many buyers in one commercial transaction. On the other 
hand, all development of merchants' capital tends to give to 
production more and more the character of a production for 
exchange and to impregnate the products more and more with 
the character of commodities. But the development of mer- 
chants' capital by itself is incapable of bringing about and 
explaining the transition from one mode of production to an- 
other, as we shall presently see. 

Within capitalist production, the merchants' capital is re- 
duced from its former independent existence to a special phase 
in the investment of capital in general, and the compensation 
of profits reduces its rate of profits to the general average. 
Then it serves only as an agent of productive capital. The 
particular social conditions, which formed together with the 
development of merchants' capital, are then no longer para- 
mount. On the contrary, where merchants' capital still pre- 
dominates, we find backward conditions. This is true even of 
one and the same country, in which, for instance, the pure 
merchants' towns form far better analogies with past condi- 
tions than the manufacturing towns. ^'^ 

An independent and prevailing development of capital in 
the shape of merchants' capital signifies that production is not 
subject to capital, in other words, it means that capital devel- 

*'' Mr. W. Kiesselbach (in his " Der Gang des Welthandels im Mittelalter," 1860) 
is indeed still living in the conceptions of a world, in which the merchants' 
capital is the general form of capital. He has not the least inkling of the 
modern meaning of capital, any more than Mommsen has, when he speaks in his 
history of Rome of " capital " and " the rule of capital." In modern English 
history, the commercial estate proper and the merchant towns are also political 
reactionaries and in league with the landed and financial aristocracy against 
industrial capital. Compare, for instance, the political role of Liverpool as against 
Manchester and Birmingham. The complete rule of industrial capital was not 
acknowledged by English merchants' capital and moneyed interests until after 
the abolition of the duties on corn, etc. 

Y 



386 Capitalist Production 

ops on the basis of a mode of production independent and out- 
side of it. The independent development of merchants' cap- 
ital stands therefore in an inverse ratio to the general econo- 
mic development of society. 

The independent mercantile wealth, as a prevailing form of 
capital represents the independent establishment of the proc- 
ess of circulation as against its extremes, and these extremes are 
the exchanging producers themselves. These extremes remain 
independent of the process of circulation, just as this circula- 
tion remains independent of them. The product becomes a 
commodity in this case by way of commerce. It is commerce 
which, under such conditions, develops products into commodi- 
ties ; it is not the produced commodity itself which, by its 
movements, gives rise to commerce. Capital in the capacity 
of capital appears here first in the process of circulation. In 
the process of circulation money first develops into capital. 
In the circulation, the products first assume the character of 
exchange values, -of commodities and money. Capital can and 
must form in the process of circulation, before it learns to 
control the extremes, that is, the various spheres of produc- 
tion between which circulation intervenes as a mediator. The 
circulation of money and commodities may act as an inter- 
mediary between spheres of production of widely different 
organisation, whose internal structure is still, predominantely 
adjusted to the production of use-values. This independent 
status of the process of circulation, by which various spheres 
of production are connected by means of a third link, ex- 
presses two facts. On tlie one hand it shows that the cir- 
culation has not yet seized hold of production, but as yet 
regards it as an existing fact. On the other hand, it shows 
that the process of production has not yet absorbed circulation 
and made a phase of production of it. But in capitalist pro- 
duction, both of these things are accomplished. The process 
of production rests wholly upon the circulation, and the cir- 
culation is a mere phase of transition of production, in which 
the product, having been created as a commodity, is realised 
in money and its elements of production replaced by products, 
which have likewise been created in the shape of commodities. 



Historical Data. '387 

That form of capital, which developed directly in circulation, 
the merchants' capital, appears here merely as one of the forms 
of capital in its process of reproduction. 

The rule, that the independent development of merchants' 
capital is inversely proportioned to the degree of development 
of capitalist production, becomes particularly manifest in the 
history of the carrying trade, for instance, among the Vene- 
tians, Genoese, Dutch, etc., where the principal gains were 
not made by the exportation of the products of the home in- 
dustries, but by the promotion of the exchange of products of 
commercially and otherwise economically undeveloped societies 
and by the exploitation of both spheres of production.*^ 

Here the merchants' capital is pure, separated from the ex- 
tremes, the spheres of production, between which it intervenes. 
This is one of the main sources of its formation. But this 
monopoly of the carrying trade disintegrates, and with it this 
trade itself, in proportion as the economic development of peo- 
ples advances, w^hom it exploits at each end of its course, and 
whose backward development formed the basis of this trade. 
In the carrying trade, this appears not only as the disintegra- 
tion of a special line of commerce, but also as the disintegration 
oi the supremacy of purely commercial nations and of their 
commercial wealth in general, which rested upon this carrying 
trade. This is but one of the special forms, which expresses the 
subordination of the commercial capital to the industrial cap- 
ital with the advance of capitalist production. The manner 
in which merchants' capital behaves wherever it rules over 
production is drastically illustrated, not only by the colonial 
economy (the colonial system) in general, but particularly by 
the methods of the old Dutch East India Company. 

Since the movement of merchants' capital is M — C — M', 

*' The inhabitants 'of merchant towns imported refined manufactured goods and 
expensive articles of luxury from rich countries, and thus offered incentives to 
the vanity of the large landowners, who eagerly bought these goods and paid large 
quantities of raw materials from their lands for them. Thus the commerce of a 
large part of Europe during this period consisted in an exchange of the raw 
materials of one country for the manufactured products of some industrially de- 
veloped country. As soon as this taste became general and created a considerable 
demand, the merchants, in order to save the expenses of freight, began to 
establish similar manufactures in their o\\n countries. (Adam Smith, Book III, 
chapter III.) 



388 Capitalist Production. 

the profit of the merchant is made, in the first place, only 
within the process of circulation, by the two transactions of 
buying and selling; and in the second place, it is realised in 
the last transactions, the sale. It is a profit upon alienation. 
At first sight, a pure and independent commercial profit seems 
impossible, so long as products are sold at their value. To 
buy cheap in order to sell dear is the rule of trade. It is not 
supposed to be an exchange of equivalents. The conception 
of value is included in it only to the extent that the individual 
commodities all have a value and are to that extent money. 
In quality, they are all expressions of social labor. But they 
are not values of equal magnitude. The quantitative ratio, in 
which products are exchanged, is at first quite arbitrary. 
They assume the form of commodities inasmuch as they are 
exchangeable, that is, inasmuch as they may be expressed in 
terms of the same third thing. The continued exchange and 
the more regular reproduction for exchange reduces this arbi- 
trariness more and more. But this applies not at once to the 
producer and consumer, but only to the mediator between 
them, the merchant, who, compares the money-prices and pock- 
ets their difference. By his own movements he establishes the 
equivalence of commodities. 

The merchants' capital is at first merely the intervening 
movement between extremes not controlled by it and between 
premises not created by it. 

Just as from the mere form of the circulation of commodi- 
ties, C — M — C, money rises not only as a measure of value 
and medium of circulation, but also as the absolute form of the 
commodity and thus of wealth, in the form of a hoard, so that 
its conservation and accumulation as money become its life's 
purpose, so money, in the shape of a hoard, issues from the 
mere form of the circulation of merchants' capital, M — C — 
M', as something which is preserved and increased only by its 
alienation. 

The trading nations of the ancients existed like the gods of 
Epicure in the intermediate worlds of the universe, or rather 
like the Jews in the pores of Polish society. The trade of the 
first independent and highly developed merchant towns and 



Historical Data. 389 

trading nations rested as a pure carrying trade upon the bar- 
barism of the producing nations between whom they inter- 
vened. 

In the precapitalist stages of society, commerce rules in- 
dustry. The reverse is true of modern society. Of course, 
commerce will have more or less of a reaction on the societies, 
between which it is carried on. It will subject production 
more and more to exchange value, by making enjoyments and 
subsistence more dependent on the sale than on the immediate 
use of the products. Thereby it dissolves all old conditions. 
It increases the circulation of money. It seizes no longer 
merely upon the surplus of production, but corrodes produc- 
tion itself more and more, making entire lines of production 
dependent upon it. However, this dissolving effect depends 
to a large degree on the nature of the producing society. 

So long as merchants' capital promotes the exchange of 
products between undeveloped societies, commercial profit does 
not only assume the shape of outbargaining and cheating, but 
also arises largely from these methods. Leaving aside the 
fact that it exploits the difference in the prices of production 
of the various countries (and in this respect it tends to level 
and fix the values of commodities), those modes of production 
bring it about that merchants' capital appropriates to itself 
the overwhelming portion of the surplus-product, either in its 
capacity as a mediator between societies, which are as yet 
largely engaged in the production of use-values and for whose 
economic organisation the sale of that portion of its product 
which is transferred to the circulation, or any sale of products 
at their value, is of minor importance; or, because under those 
former modes of production, the principal owners of the sur- 
plus-product, with whom the merchant has to deal, are the 
slave holder, the feudal landlord, the state (for instance, the 
oriental despot), and they represent the wealth and luxury, 
which the merchant tries to trap, as Adam Smith correctly 
scented in that passage on feudal times, which I have quoted 
above. Merchants' capital in its supremacy everywhere stands 
for a system of robbery,^^ and its development, among the 

** " Now tHere is among merchants much complaint about the nobles or robbers. 



390 Capitalist Production, 

trading nations of old and new times, is always connected with 
plundering, piracy, snatching of slaves, conquest of colonies. 
See Carthage, Rome, and later Venetians, Portuguese, Dutch, 
etc. 

The development of commerce and merchants' capital brings 
forth everywhere the tendency toward production of exchange 
values, increases its volume, multiplies and monopolises it, de- 
velops money into world money. Commerce therefore has 
everywhere more or less of a dissolving influence on the pro- 
ducing organisations, which it finds at hand and whose differ- 
ent forms are mainly carried on with a view to immediate 
use. To what extent it brings about a dissolution of the old 
mode of production, depends on its solidity and internal artic- 
ulation. And to what this process of dissolution will lead, in 
other words, what new mode of production will take the place 
of the old, does not depend on commerce, but on the character 
of the old mode of production itself. In the antique Avorld 
the effect of commerce and the development of merchants' 
capital always result in slave economy; or, according to what 
the point of departure may be, the result may simply turn out 
to be the transformation of a patriarchal slave system devoted 

because they must trade under great danger and run the risk of being kidnapped, 
beaten, blackmailed, and robbed. If they suffered these things for the sake of 
justice, the merchants would be saintly people . . . But since sucli great 
wrong and unchristian thievery and robbery are committed all over the world 
by merchants, and even among themselves, is it any wonder that God should pro- 
cure that such great wealth, gained by wrong, should again be lost or stolen, 
and, they themselves hit over their heads or made prisoners? . . . And the 
princes should punish such unjust bargains with due rigor and take care that 
their subjects shall not be so outrageously abused by merchants. Because they 
don't do so, God employs knights' and robbers, and punishes through them the 
merchants for the wrongs committed, and uses them as his devils, just as he 
plagues Egypt and all the world with devils, or persecutes with enemies. In the 
same way he beats one boy through another, without thereby insinuating that 
knights are any the less robbers than merchants, although the merchants daily 
rob the whole world, while a knight may rob one or two once or twice in a year." 
"Go by the word of Esau: Thy princes have become the companions of robbers. 
For they hang the thieves, who have stolen a gulden or a half gulden, but they 
associate with those, who rob all the world and steal with greater assurance 
than all others, that the proverb may remain true: Great thieves hang little 
thieves; and as the Roman senator Cato said: Mean thieves lie in prisons and 
stocks, but public thieves are clothed in gold and silks. But what will God say 
finally? He will do as he said to- Ezekiel, he will amalgamate princes and 
merchants, one thief with another, like lead and iron, as when a city burns down, 
leaving neither princes nor merchants." (Martin Luther, Bticher vom Kauf- 
handel und Wucher. Vom Jahr, 1527.) 



Historical Data. 391 

to the production of direct means of subsistence into a similar 
system devoted to the production of surplus-value. However, 
in the modern v^orld, it results in the capitalist mode of pro- 
duction. From these facts it follov^s, that these results were 
conditioned on quite other circumstances than the mere in- 
fluence of the development of merchants' capital. 

It follows from the nature of the case that as soon as town 
industry as such separates from agricultural industry, its prod- 
ucts are from the outset commodities and require for their sale 
the intervention of commerce. The leaning of commerce upon 
the development of the towns, and, on the other hand, the de- 
pendence of the towns upon commerce, are to that extent in- 
telligible. However, in what measure industrial development 
will keep step with this development, depends upon quite 
other circumstances. Already ancient Rome, in its later re- 
publican days, developed merchants' capital more highly than 
it had ever existed in the antique world, without any progress 
in the development of crafts, while in Corinth and in other 
Grecian towns of Europe and Asia Minor the development of 
commerce was accompanied by highly developed crafts. On 
the other hand, in direct opposition to the development of towns 
and its conditions, the trading spirit and the development of 
commerce are frequently found among unsettled nomadic 
peoples. 

There is no doubt — and it is precisely this fact which 
has led to many wrong conceptions — that in the 16th and 
17th centuries the great revolutions, which took place in com- 
merce with the through geographical discoveries and rapidly 
increased the development of merchants' capital, form one of 
the principal elements in the transition from feudal to capi- 
talist production. The sudden expansion of the world market, 
the multiplication of the circulating commodities, the zeal 
displayed among the European nations in the race after the 
products of Asia and the treasures of America, the colonial 
system, materially contributed toward the destruction of the 
feudal barriers of production. However, the modern mode 
of production, in its first period, the manufacturing period, 
developed only in places, where the conditions for it had been 



392 Capitalist Production. 

previously developed during medieval times. Compare, for 
instance, Holland with Portugal. ^^ And, on the other hand, 
when in the 16th, and partially still in the I7th, century the 
sudden expansion of commerce and the creation of a new world 
market exerted an overwhelming influence on the overthrow 
of the old mode of production and the rise of the capitalistic 
one, this was accomplished on the basis of the already created 
capitalist mode of production. The world market forms itself 
the basis of this mode of production. On the other hand, the 
immanent necessity of this production to produce on an ever 
enlarged scale tends to extend the world market continually, 
so that it is not commerce in this case which revolutionises in- 
dustry, but industry which continually revolutionises com- 
merce. The commercial supremacy itself is now conditioned 
on, the greater or smaller prevalence of the conditions for a 
large industry. Compare for instance, England and Holland. 
The history of the decline of Holland as the ruling commercial 
nation is the history of the subordination of merchants' capital 
to industrial capital. The obstacles presented by the inter- 
nal solidity and articulation of precapitalistic, national, modes 
of production to the corrosive influence of commerce is strik- 
ingly shown in the intercourse of the English with India and 
China. The broad basis of the mode of production is here 
formed by the unity of small agriculture and domestic indus- 
try, to which is added in India the form of communes resting 
upon common ownership of the land, which, by the way, was 
likewise the original form in China. In India, the English 
exerted simultaneously their direct political and economic 
power as rulers and landlords, for the purpose of disrupting 
these small economic organisations.^^ The English commerce 

^^ How overweening fishing, manufacture, and agriculture were as a basis in 
the development of Holland, aside from other circumstances, has already been 
explained by writers of the 18th century, for instance, by Massie. In contradis- 
tinction to the former view, which underrated the volume and importance of the 
commerce of Asia, of antiqtiity, and of the Middle Ages, it has now become the 
custom to overestimate it extraordinarily. The best remedy against this conception 
is a study of the imports and exports of England in the beginning of the ISth 
century and their comparison with modern imports and exports. And yet this 
IStli century commerce was incomparably greater than that of any former trading 
nation. (See Anderson, History of Commerce.) 

" If .any nation's history, then it is the history of the English management of 



Historical Data. 393 

exerts a revolutionary influence on these organisations and 
tear? them apart only to the extent that it destroys by the low 
prices of its goods the spinning and weaving industries, which 
are an archaic and integral part of this unity. And even so 
this work of dissolution is proceeding very slowly. It pro- 
ceeds still more slowly in China, where it is not backed up by 
any direct political power on the part of the English. The 
great economy and saving in time resulting from the direct 
connection of agriculture and manufacture offer here the most 
dogged resistance to the products of great industries, whose 
prices are everywhere perforated by the dead expenses of their 
process of circulation. On the other hand, Russian com- 
merce, unlike the English, leaves the economic basis of Asiatic 
production untouched.^ ^ 

The transition from the feudal mode of production takes 
two roads. The producer becomes a merchant and capitalist, 
in contradistinction from agricultural natural economy and 
the guild-encircled handicrafts of medieval town industry. 
This is the really revolutionary way. Or, the merchant takes 
possession in a direct way of production. While this way 
serves historically as a mode of transition — instance the Eng- 
lish clothier of the 17th century, who brings the weavers, al- 
though they remain independently at work, under his control 
by selling wool to them and buying cloth from them — never- 
theless it cannot by itself do much for the overthrow of the old 
mode of production, but rather preserves it and uses it as its 
premise. For example, even up to the middle of the 19th 
century the manufacturer in the French silk industry and in 
the English hosiery and lace industries was but nominally a 
manufacturer, and merely a merchant in point of fact, who 
permitted the weavers to continue their work in the old un- 

India which is a string of unsuccessful and really absurd (and in practice in- 
famous) experiments in economics. In Bengal they created a caricature of Eng- 
lish landed property on a large scale; in southeastern India a caricature of small 
allotment property; in the Northwest they transformed to the utmost of their 
ability the Indian commune with common ownership of the soil into a caricature of 
itself. 

°^ Since Russia has begun making frantic exertions to develop its own capitalist 
production, which is exclusively dependent upon its home market and the neigh- 
boring Asiatic states, this is also gradually changing. — F. E. 



394 Capitalist Production. 

organised way and exerted only the control of the merchant, 
for whom they work in reality. ^^ This method is everywhere 
an obstacle to a real capitalist mode of production and de- 
clines with the devolopment of the latter. Without revolu- 
tionising the mode of production, it deteriorates merely the 
condition of the direct producers, transforms them into mere 
wage workers and proletarians under worse conditions than 
those who have already been placed under the immediate con- 
trol of capital and absorbs their surplus-labor on the basis of 
the old mode of production. The same conditions exist in a 
somewhat modified form in the London furniture industry, so 
far as it is carried on by handicrafts. Particularly in the 
Tower hamlets it is practised on a very extensive scale. The 
whole production is divided into numerous separate lines in- 
dependent of one another. One business makes only chairs, 
another only tables, a third only bureaus, etc. But these lines 
of business themselves are run more or less like crafts, by 
one small master with a few journeymen. ISTevertheless the 
output is too large to work directly for private persons. The 
products are bought by owners of furniture stores. On Sat- 
urdays the master sees them and sells his product, and the 
transaction is closed with as much haggling as is done in a 
pawnshop over the loan on this or that piece. The masters 
need this weekly sale, were it for no other reason than to buy 
more raw materials for next week and pay wages. Under 
these circumstances, they are really only middlemen be- 
tween their employes and the merchants. The merchant is 
the real capitalist, who pockets the largest share of the sur- 
plus-value.^^ 

A similar condition exists in the transition to manufacture 
from lines, which were formerly carried on as handicrafts or 
as sidelines to rural industries. According to the development 

^^ The same is true of the ribbon and basting makers and silk weavers in the 
Rhine districts. Near Crefeld even a railroad has been built for the intercourse 
of these rural hand weavers with the " manufacturer " in the city, but has later 
been tied up, together with the handloom weavers themselves, by the mechanical 
weaving industry. — F. E. 

" This system has been developed since 1865 on a still larger scale. Details 
concerning it are contained in the First Report of the Select Committee of the 
House of Lords on the Sweating System, London, 1888. — F. E. 



Historical Data. 395 

of such small independent businesses — which may even em- 
ploy machinery that admits of a craftslike operation — the 
transition to large scale industry takes place. The machine is 
driven by steam, instead of by hand. This is the case, for in- 
stance, of late in the English hosiery industry. 

There is, consequently, a threefold transition. First, the 
merchant becomes directly an industrial capitalist. This is 
the case in crafts conditioned on commerce, especially indus- 
tries producing luxuries, which are imported by the merchants 
together with the raw materials and laborers from foreign 
countries, as they were in Italy from Constantinople in the 
15th century. In the second place, the merchant converts the 
small masters into his middlemen or, perhaps, buys direct 
from the self-producer, leaving him nominally independent and 
his mode of production unchanged. In the third place, the in- 
dustrial becomes a merchant and produces immediately on a 
large scale for commerce. 

In the Middle Ages, the merchant is merely the man who, 
as Poppe correctly says, " removes " the goods produced by the 
gTiilds or tlie peasants. The merchant becomes an industrial 
capitalist, or rather, he lets the craftsmen, particularly the 
small rural producers, work for him. On the other hand, 
the producer becomes a merchant. The master weaver, instead 
of receiving his wool in installments from the merchant and 
working for him with his journeymen buys wool or yarn him- 
self and sells his cloth to the merchant. The elements of pro- 
duction pass into his process of production as commodities 
bought by himself. And instead of producing for the indi- 
vidual merchant, or for definite customers, the master cloth- 
weaver produces for the commercial world. The producer is 
himself a merchant. The merchants' capital performs no 
longer anything but the process of circulation. Originally 
the commerce was the premise for the transformation of the 
crafts, rural domestic industries, and feudal agriculture into 
capitalist enterprises. It develops the products into commod- 
ities, either by creating a market for them, or by carrying new 
equivalents in the form of goods to them and supplying pro- 
duction with new raw and auxiliary materials. In this way 



396 Capitalist Production. 

it opens up new lines of production, which are based at the 
outset upon commerce, both as concerns the production for 
the home and world market and as concerns conditions of pro- 
duction originated by the world market. As soon as manufac- 
ture gains sufficient strength, and still more large scale indus- 
try, it creates in its turn a market for itself and captures it 
with its commodities. ISTow commerce becomes the servant of 
industrial production, and a continual expansion of the mar- 
ket becomes a vital necessity for industrial production. An 
ever more extended wholesale production floods the existing 
market and thereby works continually toward a still wider 
expansion of the market and a bursting of its bonds. What 
restricts this wholesale production, is not commerce (to the 
extent that it expresses the existing demand), but the magni- 
tude of the employed capital and the developed productivity of 
labor. The industrial capitalist always has the world market 
before him, compares, and must continually compare, his 
own cost-prices with those of the whole world, not only with 
those of his home market. In former periods this comparison 
falls almost entirely upon the shoulders of the merchants, and 
thereby secures for merchants' capital the supremacy over in- 
dustrial capital. 

The first theoretical treatment of modern modes of produc- 
tion — the mercantile system — started out necessarily from 
the superficial phenomena of the process of circulation, which 
are presented in an independent form by the movements of 
merchants' capital. Therefore it grasped only the semblance 
of things. This was partly due to the fact that merchants' 
capital is the first free mode of existence of capital in general. 
On the other hand, it was due to the overwhelming influence 
exerted by this capital during the first period of revolution of 
feudal production, the period of genesis of modern production. 
The real science of modern economy does not begin, until the- 
oretical analysis passes from the process of circulation to the 
process of production. It is true, interest-bearing "capital is 
likewise a very old form of capital. But we shall see later, 
why mercantilism did not take its departure from it, but as- 
sumed a controversial attitude towards it. 



PAET V. 

DIVISIOK OF PEOFIT INTO K^TEEEST AND 

PEOEITS OF ENTEEPEISE. 

THE INTEEEST-BEAEING' CAPITAL. 



CHAPTEE XXI. 

THE INTEEEST-BEAEING CAPITAL. 

Iisr our first discussion of the general, or average, rate of profit 
in Part II of this volume, we did not have this rate before us 
in its complete form, since the equalisation of profit appeared 
there only as an equalisation between the various industrial 
capitals invested in different spheres. This was further sup- 
plemented in the preceding Part, in which the participation 
of merchants' capital in this equalisation and the commercial 
profit were discussed. By this means the general rate of profit 
and the average profit presented themselves within more cir- 
cumscribed limits than before. In the further process of our 
analysis it should be remembered, that any future refer- 
ence to the general rate of profit or to the average profit 
means only this latter, completed, form of the average rate. 
Since this rate is now the same for the industrial and the 
mercantile capital, it is no longer necessary, so far as this 
average profit is concerned, to make any distinction between 
industrial and commercial profit. Whether capital is invested 
industrially in the sphere of production, or commercially in 
the sphere of circulation, it yields the same average profit an- 
nually in proportion to its magnitude. 

Money — which signifies here any independent expression 
of a certain amount of value, whether it exists actually as 

397 



. 39^ Capitalist Production. 

money or as commodities — may be converted into capital on 
the basis of capitalist production. By this conversion it is 
transformed from a given value to a self-expanding, increas- 
ing, value. It produces a profit, that is, it enables a capital- 
ist to extract a certain amount of impaid labor, surplus-prod- 
ucts and surplus-value, from the laborers and to appropriate 
it to himself. In this way it acquires, aside from its use- 
value as money, an additionel use-value, namely that of serv- 
ing as capital. Its use-value consists then precisely in the 
profit, which it produces when converted into capital. In 
this capacity of potential capital, of a means for the produc- 
tion of profit, it becomes a commodity, but a commodity of a 
peculiar kind. Or, what amounts to the same, capital as cap- 
ital becomes a commodity.^^ 

Take it that the average rate of profit is 20%. In that 
case a machine, valued at 100 p.st., employed as capital under 
the prevailing average conditions and with an average exertion 
of intelligence and adequate activity, would yield a profit of 20 
p.st. In other words, a man having 100 p.st. at his disposal, 
holds in his hand a power by which 100 p.st. may be turned 
into 120 p.st., or by which a profit of 20% may be produced. 
He holds in his hand a potential capital of 100 p.st. If 
this man relinquishes these 100 p.st. for one year to another 
man, who uses this sum actually as capital, he gives him 
the power to produce a profit of 20%, a surplus-value, which 
costs this other nothing, for which he pays no equivalent. 
If this man should pay, say 5 p.st. at the close of the year 
to the owner of the 100 p.st., out of the produced profit, he 
would be paying for the use-value of the 100 p.st., the use- 
value of its function as capital, the function of producing 
20 p.st. of profit. That part of the profit, which he pays to 
the owner, is called interest. It is merely another name, a 
special term, for a certain part of the profit, which capital 
in process of its function has to give up to its owner, instead 
of keeping it in its own pockets. 

" At this place, some passages should be quoted, in which the economists con- 
ceive the matter in this way. " You (the Bank of England) are very large 
dealers in the commodity capital? " is a question presented to a director of this 
bank on the witness stand. (See Report on Bank Acts, H. of C, 1857.) 



Interest-Bearing Capita!. 399 

It is evident, that tlie possession of 100 p.st. gives to their 
owner the power to absorb the interest, a certain portion of 
the profit produced by his capitaL If he did not give the 
100 p.st. to the other man, then this other could not produce 
any profit, and could not act in the capacity of capitalist at all 
with reference to these 100 p.st.^^ 

To speak in such a case of natural justice, as Gilbart is 
doing (see note), is nonsense. The justice of the transactions 
between the agents of production rests on the fact that these 
transactions arise as natural consequences from the conditions 
of production. The juristic forms, in which these economic 
transactions appear as activities of the will of the parties con- 
cerned, as expressions of their common will and as contracts 
which may be enforced by law against some individual party, 
cannot determine their content, since they are only forms. 
They merely express this content. This content is just, when- 
ever it corresponds, and is adequate, to the mode of produc- 
tion. It is unjust, whenever it contradicts that mode. 
Slavery on the basis of capitalist production is unjust; like- 
wise fraud in the quality of commodities. 

The 100 p.st. produce the profit of 20 p.st. by functioning 
as capital, whether it be industrial or commercial. But the 
indispensable condition of this function as capital is that this 
money is used as capital, that this money is invested in the 
purchase of means of production (in the case of industrial 
capital), or of commodities (in the case of merchants' cap- 
ital). But in order to be expended, it must be there. If A, 
the owner of the 100 p.st., were to spend them for his private 
expenses, or to keep them as a hoard, they could not be 
invested by B, in his capacity as a capitalist, as capital. 
B does not invest his own capital, but that of A. But he 
cannot expend the capital of A without the consent of A. 
Therefore it is really A, who first expends these 100 p.st. 
as capital, although his whole function as a capitalist is 
limited to this expenditure of 100 p.st. as capital. So far 

^ " That a man, who borrows money with the intention of making a profit on 
it, should give a portion of the profit to the lender, is a self-understood principle 
of natural justice." (Gilbart, The History and Principles of Banking, London, 1834, 
p. 163.) 



400 Capitalist Production. 

as these 100 p.st. are concerned, B acts in the capacity of 
a capitalist only because A lends him this money and thus 
expends it as capital. 

Let us first consider the peculiar circulation of interest- 
bearing capital. Then we shall analyse in the second place 
the peculiar manner, in which it is sold as a commodity, 
being merely lent instead of relinquished for good. 

The point of departure is the money, which A advances 
to B. This may be done with or without security. How- 
ever, the first named form is the more ancient, with the 
exception of advances on commodities or on certificates of 
indebtedness, such as bills of exchange, bonds, etc. These 
special forms do not concern us here. We are dealing here 
with interest-bearing capital in its ordinary form. 

In the hand of B, the money is actually converted into 
capital, passes through the process M — C — M', and returns 
as M' to A, as M -j- increment of M, where the increment of 
M represents the interest. For the sake of simplicity we 
leave out of consideration the case, in which capital stays in 
the hands of B for a long term and interest is paid at period- 
ical intervals. 

The movement, then, is M — M — C— M' — M'. What 
appears duplicated here is 1) the expenditure of the money 
as capital, 2) its reflux as realised capital, as M', or as M -(- 
increment of M. 

In the movement of merchants' capital, M — C — M', the 
same commodity changes hands twice, or even more than 
twice, if one merchant sells to another. But every change 
of hand of these commodities indicates a metamorphosis, a 
purchase or sale of commodities, no matter how often this 
process may be repeated until it ends in consumption. 

On the other hand, the same money changes hands twice 
in C — M — C, but this indicates the complete metamor- 
phosis of the commodity, which is first converted into money 
and then from money back into another commodity. 

But in the case of interest-bearing capital, the first change 
of hands of M is not a phase of either the metamorphosis 
of a commodity or of the reproduction of capital. It does 



Interest-Bearing Capital. 401 

not become so until the second change of hands, in the hands 
of the man acting in the capacity of a capitalist, who carries 
on a trade with it or transforms it into productive capital. 
The first change of hands of M does not express anything 
else in this case bnt its transfer, or handing over by contract, 
from A to B, This is a transfer^ which usually takes place 
under certain juristic forms and stipulations. 

This duplicated expenditure of money as capital, the first 
of which is merely a transfer from A to B, is supplemented 
by the duplication of its reflux. As M', or M + increment 
of M, it flows back out of the process to the man acting in 
the capacity of a capitalist. This man in his turn transfers 
it back to A, together with a part of the profit, of realised 
capital, of M -]- increment of M, which, hovv^ever, is not 
equal to the entire profit, but only a part of the profit, the 
interest. It flows back to B only as the thing which he had 
invested, as capital in process of function, but as the property 
of A. In order that its reflux may be complete, B must re- 
turn it to A. But B has not only to return the amount of 
the capital, he must also turn over to A a part of the profit, 
which he made with this capital, and this part is called in- 
terest. For A gave him this money only as a capital, that 
is, as a value, which is not only maintained by its move- 
ments, but brings also a. surplus-value to its owner. It re- 
mains in the hands of B only so long as it is performing its 
function of capital. And it ceases to be capital as soon as 
it is returned to its owner on the stipulated date. When no 
longer serving as capital, it must be returned to A, who 
never ceased being its legal owner. 

The form of lending, which is peculiar to this commodity, 
this capital as a commodity, and which also occurs in other 
transactions instead of that of sale, follows from the simple 
definition that capital serves here as a commodity, or that 
money as capital becomes a commodity. 

It is necessary to make a distinction here. 

We have seen in Volume II, chapter I, and recall at this 
point, that capital serves in the process of circulation as 
commodity-capital and money-capital. But in neither of 



402 Capitalist Production. 

ttese forms does caj)ital become a commodity as capital. 

As soon as the productive capital has transformed itself 
into commodity-capital, it must be thrown upon the market, 
it must be sold as a commodity. There it serves simply in 
the capacity of a commodity. The capitalist then appears 
only as a seller of commodities, just as the buyer is only 
a buyer of commodities. As a commodity, the product must 
realise its value in the process of circulation, by its sale, 
must assume the form of money. In this respect it is quite 
immaterial, whether this commodity is bought by a consumer 
for the purpose of subsistence, or by a capitalist as a means 
of production to become a part of his capital. In the act of 
circulation, the commodity-capital serves only as a com- 
modity, not as capital. It is a commodity-capita^^ as dis- 
tinguished from a simple commodity, 1), because it is preg- 
nant wdth surplus-value, so that the realisation of its value 
is simultaneously a realisation of surplus-value. But this 
does not alter in any way its simple existence as a com- 
modity, as a product of a certain price. 2) It is a com- 
TCiodiij-capital, because its function as a commodity is a phase 
in its process of reproduction as capital, so that its move- 
ment as a commodity, being a part of its movement in proc- 
ess, is simultaneously its movement as capital. Yet it does 
not become capital by the act of selling as such, but only 
through the connection of this act with the whole movement 
of this definite amount of value in the capacity of capital. 

In like manner it serves only as money pure and simple, 
when acting in the capacity of money-capital, that is, as a 
means of buying commodities (the elements of production). 
The fact that this money is at the same time money-capital, 
a form of capital, is not due to the act of buying, which is 
the service performed by it as money. It is due to the con- 
nection of this act with the total movement of capital, since 
this act, which it performs as money, inaugurates the capital- 
ist process of production. 

But so far as they perform any service and play any actual 
role in the process, commodity-capital on the market serves 
only as a commodity, money-capital only as money. At no 



Interest-Bearing Capital. 403 

time during the metamorphosis, viewed by itself, does the 
capitalist sell his commodities as capital to the buyer, al- 
though they represent a capital for himself, nor does he give 
up money to the sellers in his capacity as a capitalist. In 
either case he exchanges his commodities simply as com- 
modities, and the money simply as money, as a means of 
purchasing commodities. 

It is only in the connection v^itli the whole process, at the 
moment where the point of departure appears simultaneously 
as the point of return, in M — W or C — C, that capital in 
the process of circulation appears as capital (while it appears 
as capital in the process of production through the subordina- 
tion of the laborer imder the capitalist and the production 
of surplus-value). In this moment of return, however, the 
connection disappears. What is present is M', that is money 
plus increment of money (regardless of whether the amount 
of value increased by this increment has the form of money, 
commodities, or elements of production), a certain amount 
of money equal to the amount originally 'advanced plus an 
increment, which is the realised surplus-value. And it is 
precisely at this point of return, where capital exists as a 
realised capital, as an expanded value, that capital never 
passes into circulation — considering this point as a fixed 
point of rest, whether imaginary or real — , but rather ap- 
pears to be withdra^vn from circulation as a result of the 
whole process. Whenever it is again relinquished, it is 
never transferred to another as capital, but sold to him as 
a simple commodity, or given to him as simple money in 
exchange for commodities. It never appears as capital in 
its process of circulation, but only as a commodity or as 
money, and this is the only form in which it exists so far 
as others are concerned. Commodities and money are here 
capital, not inasmuch as commodities change into money, or 
money into commodities, not with reference to their actual 
relations to sellers or buyers, but only with reference to their 
ideal relations, that is, subjectively speaking, their relations 
to the capitalist himself, or objectively speaking, as elements 
of the process of reproduction. So far as capital is capital. 



404 Capitalist Production. 

it exists only in its actual function, not in the process of 
circulation, but only in the process of production, in the 
process by which labor-power is exploited. 

But it is different with interest-bearing capital, and it is 
precisely this difference, which constitutes its specific char- 
acter. The owner of money, who desires to invest his money 
as interest-bearing capital, transfers it to some one else, 
throws it into circulation, makes a commodity of it as capital. 
It is not a capital for himself alone, but also for others. It 
is not capital merely for the man who offers it for invest- 
ment, but it is handed to others at the outset as capital, as 
a value endowed with the use-value of creating surplus-value, 
profit; a value which preserves itself in process and returns 
to its original owner, in this case the owner of money, after 
performing its function. It moves away from him only for 
a certain time, it passes for a while from the possession of 
its owner into that of a capitalist performing his business, 
it is neither given up in payment nor sold, but merely loaned. 
It is relinquished only with the understanding that it shall 
in the first place return to its point of departure after a cer- 
tain time, and that it shall return, in the second place, as 
realised capital, a capital having actually perfonned its func- 
tion of creating surplus-value. 

Commodities, which are loaned out as capital, are loaned 
either as fixed or as circulating capital, according to their 
constitution. Money may be loaned in either form. For in- 
stance, it may be loaned as fixed capital in the form of an 
annuity, whereby a portion of the capital returns with the 
interest. Some commodities, owing to the nature of their 
use-values, can be loaned only as fixed capital, such as houses, 
ships, machines, etc. But all loan capital, whatever be its 
forms, and no matter in what manner the nature of its use- 
value may modify its return, is only a specific form of 
money-capital. For the thing that is loaned here is always 
a definite sum of money, and it is this sum on which interest 
is calculated. If the thing that is loaned is neither money 
nor circulating capital, it is paid back in the same way in 
which fixed capital returns. The lender receives periodically 



Interest-Bearing Capital. 405 

a certain interest and a portion of the consumed value of 
the fixed capital itself, an equivalent for the periodical wear 
and tear. And at the end of the stipulated term the uncon- 
sumed portion of the loaned fixed capital is returned in 
fiatura. If the loaned capital is circulating capital, it is like- 
wise returned in the manner peculiar to circulating capital. 

The manner of reflux, then, is always determined bj the 
actual circulation of the capital in process of reproduction 
and its specific kind. But so far as loan capital is concerncLl, 
its reflux assumes the form of return payments, because its 
advance, by which it is relinquished, has the form of loaning. 

In this chapter we treat only of money-capital proper, from 
which the other forms of loaned capital are derived. 

The loaned capital returns in a twofold way. First it re- 
turns in the process of reproduction to the capitalist per- 
forming his function, and then its return is duplicated by 
its transfer to the lender, the money-capitalist, in the form 
of a return payment to its real owner, its legal point of de- 
parture. 

In the actual process of circulation the capital appears 
always as a commodity or as money, and its movements are 
always dissolved into a series of purchases and sales. In 
short, the process of circulation resolves itself into the meta- 
morphosis of commodities. It is different, when we consider 
the process of reproduction as a whole. If we take our de- 
parture from money (and it is the same, when we start off 
with commodities, since we then take our departure from 
their value and look upon them from the point of view of 
money), we see that a certain sum of money is expended and 
returns after a certain period with an increment. This sum 
has preserved itself and expanded itself in the course of a 
certain rotation. To the extent that money is loaned as capi- 
tal, it is loaned as just such a sum of money, which preserves 
and expands itself, returns after a certain period with an in- 
crement, and is ready to pass through the same process once 
more. It is not expended either as money or as a commodity, 
it is neither exchanged for commodities when advanced in 
the form of money, nor sold in exchange for money, when 



4o6 Capitalist Production. 

advanced in the form of commodities. It is expended as 
capital. This reflexive relation to itself, in which capital 
presents itself when the process of production is viewed in 
its entirety and as a unit, and in which money appears as 
self-increasing money, is here imposed upon it as its char- 
acter and peculiarity without the intervention of any inter- 
mediary movement. And it is expended in this peculiar form, 
when it is loaned as money-capital. 

A very queer conception of the role of money-capital is held 
by Proudhon "" Qratuite du Credit. Discussion enter M. F. 
Bastiate et M. Proudhon. Paris, 1850.") Loaning appears 
as an evil to Proudhon because it is not selling. Loaning at 
interest is for him " the faculty of always selling the same 
article over and over, and of receiving its price again and 
again, without ever relinquishing the ownership of the things 
one is selling " (page 9). The object, such as money, a house, 
etc., does not change owners, as it does in selling and buying. 
But Proudhon does not see, that no equivalent is received for 
money handed over as interest-bearing capital. It is true 
that objects are passed from one to another in every act of 
buying and selling, so far as they are at all processes of ex- 
change. The ownership of the sold object is always relin- 
quished. But its value is not given up. In selling the com- 
modity is relinquished, but not its value, which is given in 
return in the form of money, or in another form which here 
takes the place of money, namely of certificates of indebted- 
ness, or of titles of payment. In buying money is given away, 
but its value, which is recovered in the shape of commodities. 
The industrial capitalist holds the same value in his hands 
during the entire process of reproduction (except the surplus- 
value), only it assumes different forms. 

To the extent that exchange takes place, that is, an ex- 
change of objects, no change of value takes place. The same 
capitalist always holds the same value in his hands. But so 
long as surplus-value is produced by the capitalist, no ex- 
change takes place. As soon as exchange takes place, the 
surplus-value is already incorporated in the commodities. If 
we do not have in mind the individual acts of exchange, but 



Interest-Bearing Capital. 407 

the total circulation of capital, M — C — ^M', we see that a 
definite amount of values is continually advanced, and that 
this amount plus the surplus-value, or the profit, is recovered 
from the circulation. It is true, the individual acts of ex- 
change do not reveal the fact that tliey are promoting this 
process. And it is precisely this process of M as capital, on 
w^hich the interest of the money-lending capitalist rests and 
from which it arises. 

" In fact," says Proudhon, " the hat maker, who sells hats 
. receives their value, no more and no less. But the 
money-lending capitalist . . . does not recover merely 
his capital : he recovers more than his capital, more than he 
throws into circulation; he receives an interest over and above 
his capital." (Page 169.) The hatter stands here in the 
place of the productive capitalist as distinguished from a 
loan capitalist. Evidently Proudhon did not learn the secret, 
which enables the capitalist to sell commodities at their value 
(the equalisation of values by the prices of production is here 
immaterial for his conception), whereby he receives a profit 
in addition to the capital, which he throws into circulation. 
Let us assume that the price of production of 100 hats is 115 
pounds sterling, and that this price of production happens 
to be identical with the value of the hats, which means that 
the capital invested in the production of hats is of the same 
composition as the average social capital. If the profit is 15 
p.st., or 15%, then the hatter gets this profit of 15 p.st. by 
selling his hats at their value of 115. They cost him 100 p.st. 
If he has produced them with his own capital, he pockets the 
whole surplus of 15 p.st. If he has borrowed the capital, he 
may have to give up 5 p.st. for interest. This does not alter 
anything in the value of the hats, but only in the distribution 
of the surplus-value already contained in this value between 
different persons. Since the value of the hats is not affected 
by the payment of interest, it is nonsense on the part of 
Proudhon to say : " As in commerce the interest of capital 
is added to the wages of laborers in making up the price of 
commodities, it is impossible that the laborer should be able 
to buy back the product of his own labor. To live by work- 



4o8 Capitalist Production. 

ing is a j)rinciple, which implies a contradiction under the 
rule of interest." ^^ 

How little Proudhon understood the nature of capital, is 
shown hy the following statement, in which he describes the 
movement of capital in general as a movement peculiar to 
interest-bearing capital : " Since money-capital, from ex- 
change to exchange, comes always back to its soLirce by the 
accumulation of interest, it follows that re-investment is al- 
ways made by the same hand and profit accrues always to the 
same person." 

What is it, now, that remains a riddle to him in the peculiar 
movement of interest-bearing capital ? The categories buy- 
ing, price, giving up objects, and the spontaneous form, in 
which surplus-value appears here ; in short, the phenomenon 
that capital as such has become a commodity, so that selling 
has been turned into lending and price into a share in the 
profit. 

The return of capital to its point of departure is the most 
general and characteristic movement of capital in its total 
circulation. This is by no means a peculiarity of interest- 
bearing capital. Its peculiarity is rather the externalised form 
of its return without the intervention of any circulation. 
The loaning capitalist lets go of his capital, transfers it to 
some industrial capitalist, without receiving any equivalent. 
His handing over of capital is not an act of the real circula- 
tion of caj)ital at all, but serves merely as a prelude for the 
industrial capitalist who effects this circulation. This first 
change of place of money does not express any act of metamor- 
phosis, neither buying nor selling. Its o"s\Tiership is not re- 
linquished, because no exchange takes place, no equivalent is 
offered. The return of the money from the hand of the in- 
dustrial capitalist to that of the loaning capitalist supplements 

^^ " A house," " money," etc., are not to be loaned as " capital," if Proudhon 
can have his way, but to be sold as " commodities ... at cost-price " (page 
44). Luther stood somewhat higher than Proudhon. He knew at least that the 
making of profits does not depend on the manner of lending or buying: " They 
turn buying also into usury. But this is really too much for one bite. We must first 
confine ourselves to one thing, usury in lending, and after we shall have stopped that 
(after judgment day), we will not fail to preach against usury in buying." (Martin 
Luther. An die Pfarherrn wider den Wucher zu predigen. Wittenberg, 1525.) 



Interest-Bearing Capital. 409 

merely the first act of handing over the capital. This capital, 
after having been advanced in the form of money, returns 
to the industrial ca]3italist from the process of circulation in 
the form of money. But as the capital did not belong to him 
when he expended it, neither can it belong to him on its re- 
turn. The passage through the process of reproduction can- 
not by any means give him the ownership of this capital. 
Hence he must restore it to its lender. The first transfer 
of the capital from the hands of the lender to those of the 
borrower is a legal transaction, which has nothing to do with 
the actual process of reproduction, but merely inaugurates 
it. The restoration, which transfers the returned capital from 
the hands of the borrower back to those of the lender is an- 
other legal transaction, a supplement of the first. The first 
inaugurates the actual process, the second takes place after 
this process. The point af departure and of return, the dis- 
pensation and recovery of the loaned capital, thus appear as 
arbitrary movements promoted by legal transactions, which 
take place before and after the actual process of capital and 
have nothing to do with it. So far as this actual process is 
conceriied, the industrial capitalist might as well own the cap- 
ital at the outset, so that it would return to him as his prop- 
erty. 

In the first introductory act the lender gives his capital 
to the borrower. In the second and closing act after the proc- 
ess, the borrower returns the capital to the lender. To the 
extent that we consider merely the transaction between these 
two — and leaving aside the question of interest for the pres- 
ent — , in other words to the extent that we have in mind 
only the movement of the loan capital itself between the 
lender and the borrower, the whole movement is comprised 
within these two acts (separated by a longer or shorter time, 
during which the process of actual reproduction of capital 
takes place). And this movement, this dispensing on condi- 
tion of returning, constitutes per se the movement of lending 
and borrowing, which is a specific form of a conditional dis- 
pensation of money or commodities. 

The characteristic movement of capital in general, namely 



4IO Capitalist Production. . 

the return of money to the capitalist, the return of capital to 
its point of departure, assumes in the case of interest-bearing 
capital a wholly externalised form, separated from the actual 
movement of which it is an expression. A lets go of his 
money, not in the sense of money, but of capital. This im- 
plies no transformation of the capital. It merely changes 
hands. Its real transformation into capital is not performed 
until it is in the hands of B. But it has become capital for 
A as soon as he has given it to B. The actual reflux of capital 
from the processes of production and circulation takes place 
only for B. But for A the reflux assumes the same form as 
the dispensation. The capital returns from the hands of B to 
those of A. Dispensing, loaning money for a certain time and 
recovering it with interest (surplus-value) make up the com- 
plete form of the movement, which is peculiar to interest- 
bearing capital as such. The actual movement of the loaned 
money as capital constitutes a process, which is outside of 
the transactions between the lender and the borrower. In 
these transactions the intermediate process is obliterated, in- 
visible, not directly comprised. 

Being a peculiar sort of commodity, capital has its own 
peculiar mode of alienation. Its return in the present case 
is not the expression, not the consequence or result, of a definite 
series of economic processes, but the outcome of a specific 
legal agreement between buyer and seller. The time of 
return depends on the duration of the process of reproduction. 
But in the case of interest-bearing capital, its return as capital 
seems to depend on the mere agreement between lender and 
borrower. The return of capital as a part of this agreement 
no longer appears as a result due to the process of reproduc- 
tion, but seems to take place without depriving the loaned 
capital of the form of money. It is true that these trans- 
actions are actually determined by the reproductive returns. 
But this is not evident in the transactions themselves. I^or 
is it always the case in practice. If the return in reproduc- 
tion does not take place at the proper time, then the bor- 
rower has to face the problem, what other resources he can 



Interest-Bearing Capital 411 

call into play to fulfill liis obligations towards the lender. 
The mere form of this capital — that is, money expended 
as a certain sum, A, and returning as another sum A + ^ , 
after a certain lapse of' time, without any other intermediate 
connection but this lapse of time — is but an abstract image 
of the actual movement of capital. 

In the actual movement of capital, its return is a phase 
of the process of circulation. The money is first converted 
into means of production; the process of production trans- 
forms it into commodities ; by the sale of the commodities it 
is reconverted into money, and in this form it returns to the 
hands of the capitalist, who originally advanced the capital 
in the form of money. But in the case of interest-bearing 
capital, both the alienation and the return are the results of 
a legal transaction between the owner of capital and another 
person. We see only the alienation and the return. What- 
ever passes during the interval is obliterated. 

But since money, when advanced as capital, has the faculty 
of returning to the person, who expended it as capital, since 
M — C — M' is the immanent form of the movement of 
capital; for this very reason the owner of money can loan it 
as capital, a thing having the faculty of returning to its point 
of departure, of preserving its value while under way in proc- 
ess, and of increasing it. He loans it as capital, because it 
returns to its point of departure after having been trans- 
formed into capital, so that the borrower can restore it to the 
lender after a certain period, because he has recovered it 
himself. 

The loaning of money as capital — its alienation on con- 
dition that it be returned after a certain time — is therefore 
conditioned on the requirement that this money be actually 
employed as capital, so that it may actually flow back to its 
starting point. The actual cycle of money as capital is there- 
fore the basic condition of the legal transaction, by which the 
borrower has to return the money to the lender. If the bor- 
rower does not invest the money as capital, it is his own 
business. The lender loans it as capital, and as such it is 



412 Capitalist Production. 

supposed to perforin the capitalist functions, which include 
the circulation of money-capital until it reaches once more 
its starting point in the form of money. 

The transactions M — C and C — M' in the circulation, 
in which a certain amount of value serves as money or com- 
modities, are but intermediary processes, individual phases 
of a whole movement. As capital, this sum passes through 
the whole movement M — M'. It is advanced as money, or 
as a sum of values in some form, and returns as a sum of 
values. The lender of money does not expend it in the pur- 
chase of commodities, or, if this sum of values exists in the 
form of commodities, he does not sell it for money, but he 
advances it as capital, as M — M', as a value, which returns 
after a certain lapse of time to its point of departure. In- 
stead of buying and selling, he loans. This loaning, then, is 
the form corresponding to its alienation as capital, instead 
of its alienation as money or commodities. This does not 
mean, however, that loaning may not be used in transactions, 
which have nothing to do with the capitalist process of re- 
production. 



We have so far considered only the movements of loaned 
capital between its owner and the industrial capitalist. Now 
we shall have to inquire into interest. 

The lender expends his money as capital; the amount of 
values, which he relinquishes into the hands of another, is 
capital and returns to him. But the mere return of the loan 
capital into his hands as the same amount would not be its 
reflux as capital, but merely the return of a loaned sum of 
values. In order to return as capital, the advanced sum of 
values must not only be preserved in process, but must also 
be expanded, must return with a surplus-value, must be re- 
covered as M -)- increment of M. This increment of M is 
in the present case the interest. It is that portion of the 
average profit, which does not remain in the hands of the 
practicing capitalist, but falls to the share of the money capital- 
ist. 



Interest-Bearing Capital. 413 

The fact that the money capitalist expends it as capital 
implies that it must be restored to him as M + increment 
of M. Later we shall also have to consider the case, in which 
interest is paid in fixed intervals without the simultaneous 
return of the capital, whose definite return does not take 
place until at the end of a longer period. 

What is it that the money capitalist gives to the borrower, 
the industrial capitalist? What does he really pass over to 
him ? It is only this transaction of handing over money 
which makes of the loaning of money a lending of money as 
capital, that is, the lending of capital as a commodity. 

It is only by this act of passing money over to another that 
the capital is loaned by the money lender as a commodity, or 
that the commodity at his disposal is given to another as 
capital. 

What is it that is alienated in ordinary sale ? It is not the 
value of the sold commodities, for this changes merely its 
form. The value exists ideally in a commodity as its price, 
before it passes actually into the hands of the seller as money. 
The same value and the same amount of value merely change 
their form in such a case. In one instance they exist in the 
form of a commodity, in another in the form of money. The 
thing which is actually alienated by the seller, and which for 
this reason passes into the individual or productive consump- 
tion of the buyer, is the use-value of the commodity, is the 
commodity as a use-value. 

What, then, is the use-value, which the money capitalist 
passes over for the period of the loan and relinquishes into 
the hands of the borrower, the productive capitalist ? It is 
the use-value, which the money assumes by being capable of 
being invested as capital and performing the functions of 
capital, so that it can create a definite surplus-value, the aver- 
age profit (any excess or fall below this is here a matter of 
accident), during its process, in addition to preserving its 
original magnitude of value. In the case of other commodities 
the use-value is ultimately consumed. Their substance dis- 
appears in consequence and with it their value. But the com- 



414 Capitalist Production. 

modity capital has the peculiarity, that the consumption of 
its use-value not only preserves its exchange value and its 
use-value, but also increases them. 

It is this use-value of money as capital, this faculty of pro- 
ducing an average profit, which the money capitalist relin- 
quishes to the industrial capitalist for the period, during 
which he yields to the latter the use of the loan capital. 

The money thus loaned shows in this respect a certain 
analogy with labor-power in its relation to the industrial 
capitalist. There is only this difference, that he pays for the 
value of labor-power, while he simply pays back the value 
of the loaned capital. The use-value of labor-power consists 
for the industrial capitalist in the faculty that labor-power 
creates more value (the profit) by its consumption for the 
industrial capitalist. And in like manner the use-value of 
the loan capital appears as its faculty of preserving and in- 
creasing value. 

The money-capitalist alienates indeed a use-value, and for 
this reason the thing which he gives away is given as a com- 
modity. And to this extent the analogy with a commodity is 
complete. In the first place, it is a value, which passes from 
one hand to another. In the case of a simple commodity, 
a commodity as such, the same value remains in the hands of 
the buyer and seller, only it has different forms ; both have 
the same value which they had before the transaction, the 
one in the form of a commodity, the other in that of money. 
The difference in the case of loan capital is that the money 
capitalist is the only one who gives away a value when loan- 
ing money ; but he preserves it by means of future restoration. 
In the transaction of loaning only one party receives value, 
since only one party relinquishes value. 

In the second place, it is a real use-value, which is relin- 
quished on one side and received and consumed on the other. 
But it diifers from the use-value of ordinary commodities in 
that it is itself a value, namely the excess over the value of 
the original capital realised by the use of money as capital. 
The profit is this use-value. 

The use-value of the loan capital consists in being able 



Interest-Bearing Capital. 415 

to serve as capital and to produce in this capacity the aver- 
age profit under average conditions.^^ 

What, then, does the industrial capitalist pay, and what 
is, therefore, the price of the loaned capital ? That which 
men pay as interest for the use of what they borrow is, ac- 
cording to Massie, a part of the profit it is capable of pro- 
ducing.^^ 

What the buyer of an ordinary commodity buys is its use- 
value; what he pays for is its exchange value. What the 
borrower of money buys, is likewise its use-value as capital; 
but what does he pay for ? Surely not for its price, or value, 
as in the case of ordinary commodities. jSTo change of form 
takes place in the value passing between the borrower and the 
lender, such as takes place between the buyer and the seller, 
so that this value would exist in one instance in the form of 
money, in another instance in the form of a commodity. The 
sameness of the alienated and returned value shows itself 
here in an entirely different way. The sum of values, the 
money, is given away without an equivalent, and is returned 
after the lapse of a certain period. The lender always re- 
mains the owner of the same value, even after it has passed 
from his hands into those of the borrower. In the simple 
exchange of commodities, the money is always on the side of 
the buyer ; but in the lending, the money is on the side of the 
lender. It is he, who gives away his money for a certain 
period, and it is the borrower, the buyer of capital, who re- 
ceives it as a commodity. But this is possible only when the 
money serves as capital and is advanced for this purpose. 
The borrower borrows money as capital, as a value producing 
an increment. But at the moment of borrowing it is as yet 
only potential capital, and so is any other capital at the mo- 
ment when it is advanced. Only by its use does it expand 

^^ The equitableness of taking interest depends not upon a man's making or not 
making profit, but upon its being capable of producing profit, if rightly employed. 
{An Essay on the Governing Causes of the Natural Rate of Interest, wherein the 
sentiments of Sir W. Petty and Mr. Locke, on that head, are considered. London, 
1750. P. 49.) The author of this anonymous work is J. Massie. 

^^ Rich people, instead of employing their money themselves ... let it out 
to other people for them to make profit of, reserving for the owners a proportion 
of the profits so made. (L. c, p. 23.) 



41 6 Capitalist Production. 

its value and realise itself as cajDital. But after it has be- 
come realised capital, the borrower has to return it, as a 
value plus a surplus-value (interest). And this interest can 
be only a portion of the realised profit. Only a portion, not 
the whole of it. For its use-value for the borrower consists 
in producing a profit for him. Otherwise there would not 
have been any alienation of its use-value on the part of the 
lender. On the other hand, it cannot be the whole profit 
which falls to the share of the borrower. Otherwise he would 
not be paying anything for the alienation of the use-value, 
and he would return the advanced money to the lender as 
simple money, not as a capital having realised itself. For 
it is realised capital only when it is M + increment of M. 

Both of them expend the same sum of money as capital, 
the lender and the borrower. But only in the hands of the 
latter does it serve as capital. The profit is doubled by the 
double existence of the same sum of money as a capital for 
two persons. It can serve as a capital for both of them only 
by dividing the profit. That portion, which falls to the share 
of the lender, is called interest. 

It is our assumption, that this entire transaction takes 
place between two kinds of capitalists, the money-capitalist 
and the industrial or the merchant capitalist. 

It should never be forgotten, that capital as such is here 
a commodity, or that the commodity, which is here in ques- 
tion, is capital. All the relations, which become manifest 
here, would be irrational from the point of view of a simple 
commodity, or even from the point of view of capital serving 
as a commodity-capital in its process of reproduction. Lend- 
ing and borrowing, instead of selling and buying, is here a 
distinction arising from the specific nature of the commodity, 
of capital; also that it is interest, not the price of the com- 
modity, which is paid here. If interest is to be called the 
price of money-capital, it will be an irrational form of price, 
which is quite at variance with the conception of the price 
of commodities.®^ The price is then reduced to its purely 

^ " The expression * value ' applied to currency has three meanings . . . 
secondly, currency actually in hand, compared with the same amount of currency, 



Interest-Bearing Capital. 417 

abstract and meaningless form, signifying a certain sum of 
money paid for some thing, 'which, serves in some manner 
as a use-value. On the other hand, the concept of price really 
signifies the value of some use-value expressed in money. 

To call interest the price of capital is to use at the outset 
an irrational expression. A commodity has here a double 
value, namely first a real value, and secondly a price differing 
from this value, while ordinarily price signifies the expression 
of the value in money. Money-capital is primarily but a sum 
of money, or the value of a certain quantity of commodities 
incorporated in a sum of money. If a commodity is loaned 
as capital, then it is only the disguised form of a sum of 
money. For that which is loaned as capital is not so and 
so many pounds of cotton, but so much money existing in the 
form of cotton as its value. The price of capital, therefore, 
refers to it as a sum of money, even if not a currency, as 
Mr. Torrens thinks (see above note 60). How, then, can a 
sum of values have a price beside its own price, that is, aside 
from the price expressed in their own money -form ? Price 
is precisely the value of commodities (and this holds good 
also of the market-price, whose difference from value is not 
one of quality, but only one of quantity, since it refers only 
to the magnitude of the value) as distinguished from their 
use-value. A price which is different in quality from value 
is an absurd contradiction.^^ 

Capital manifests itself as capital by its employment. The 
degree of its self -expansion expresses the quantitative ratio, 
in which it realises itself as capital. The surplus-value or 
profit produced by it — its rate or magnitude — is measur- 
able only by its comparison with the value of the advanced 
capital. The greater or lesser self-expansion of interest- 

which will come in at some later day. Then its value is measured by the rate- 
of interest, and the rate of interest determined by the ratio between the amount 
of loanable capital and the demand for it." (Colonel R. Torrens: On the Oper- 
ation of the Bank Charter Act of 1844, etc., 2nd. ed., 1847.) 

*i " The ambiguity of the term ' value of money ' or 'of the currency,' when 
employed indiscriminately as it is, to signify both value in exchange for com- 
modities and value in use of capital, is a constant source of confusion." (Tooke: 
Inquiry into the Currency Principle, p. 77.)' The main confusion (implied by the 
question itself) that value as such (interest) should be considered as the use- 
value of capital, has escaped Tooke. 

8A 



41 8 Capitalist Production. 

bearing capital is, therefore, only measurable by a comparison 
of the amount of interest, its share in the total profits, with 
the value of the advanced capital. While the price expresses 
the value of commodities, the interest expresses the self- 
expansion of money-capital and thus appears as the price, 
which the lender receives for it. This shows how absurd it is 
at the start to apply indiscriminately to this question the sim- 
ple relations of exchange through buying and selling, as 
Proudhon does. For the basic premise is here that money 
serves as capital and may thus be transferred as capital itself, 
as potential capital, to another person. 

Capital itself appears here as a commodity, inasmuch as 
it is offered on the market as the use-value of money actually 
handed over as capital. Its use-value consists in producing 
profits. The value of money or of commodities employed in 
the capacity of capital is not determined by their value as 
money or commodities, but by the quantity of surplus-value, 
which they produce for their owner. The product of capital 
is profit. On the basis of capitalist production it is merely 
a difference in the employment of money, whether it is ex- 
pended as money or advanced as capital. Money, or com- 
modities, are in themselves, potentially, capital, just as labor- 
power is potential capital. For in the first place, money may 
be converted into elements of production and is to that extent 
only an abstract expression of them, personifying their ex- 
istence as values; in the second place, the material elements 
of wealth have the capacity of being even potentially capital, 
because the opposite supplement, which makes capital of them, 
namely wage-labor, is present on the basis of capitalist pro- 
duction. 

The opposing social peculiarities of material wealth, its 
antagonism to labor in the form of wage-labor, considered 
apart from the process of production, are expressed even in 
capitalist property as such. This particular fact, when sep- 
arated from the process of capitalist production itself, of 
which it is a constant result and, being its constant result, 
is its constant prerequisite, expresses itself in such a way that 
money and commodities alike become latent, potential, capital, 



Interest-Bearing Capital. 419 

so that thej may be sold as capital, and that they represent 
in this form a command over the labor of others, a claim to 
the appropriation of the labor of others, so that they become 
self-expanding values. In this way it also becomes clearly 
apparent that this relation supplies the title and means for 
the appropriation of the labor of others, and that this is not 
due to any labor offered as an equivalent on the part of the 
capitalist. 

Capital appears furthermore as a commodity, inasmuch 
as the division of profit into interest and profit proper is reg- 
ulated by demand and supply, that is, by competition, just as 
are tlie market-prices of commodities. But in the present case 
the difference becomes quite as apparent as the analogy. If 
demand and supply balance, the market-price of commodities 
corresponds to their price of production. In other v^ords, 
their price is then seen to be regulated by the internal laws 
of capitalist production, independently of competition, since 
the fluctuations of supply and demand do not explain any- 
thing but the deviations of market-prices from the prices of 
production. These deviations balance mutually, so that in 
the course of long periods the average market-prices corre- 
spond to the prices of production. As soon as these prices 
coincide, these forces cease to operate, they compensate one 
another, and the general law determining prices then applies 
also to individual cases. The market-price then corresponds 
even in its immediate form, and without the help of averages 
dra^^vn from- the movements of market-prices, to the price of 
production, which is regulated by the immanent laws of the 
mode of production itself. The same is then true of wages. 
If supply and demand balance, they neutralise each other's 
effects, and wages are then equal to the value of labor-power. 
But it is different with the interest on money-capital. Com- 
petition does not, in this case, determine the deviations from 
the rule, but there is rather no law of division except that 
enforced by competition, because no such thing as a " natural " 
rate of interest exists, as we shall see presently. By the nat- 
ural rate of interest people merely mean the rate fijxed by 
free competition. There are no " natural " limits for the rate 



420 Capitalist Production. 

of interest. Whenever competition does not merely deter- 
mine the deviations and fluctuations, in other words, when- 
ever a neutralisation of the opr)osing forces of competition 
puts a stop to all determination, the thing to be determined 
becomes a matter of arbitrary and lawless estimation. We 
shall dwell on this further in the next chapter. 

In the case of interest-bearing capital, everything is out- 
ward appearance: The advance of capital seems a mere 
transfer from the lender to the borrower; the reflux of real- 
ised capital a mere transfer back to its owner, a return pay- 
ment with interest from the borrower to the lender. The 
same holds good of the fact, due to the capitalist mode of 
production, that the rate of profit is not merely determined 
by the relation of the profit made in one single turn-over 
to the advanced capital-value, but also by the length of the 
time of turn-over itself, so that it is a question of a profit 
realised on the industrial capital in definite periods of time. 
This likewise appears in the case of interest-bearing capital 
in the outward fact, that a definite interest is paid to the 
lender for a definite period of time. 

With his customary insight into the internal connection of 
things, th^ romantic Adam Miiller says ('' Elemente der 
Staatskunst," Berlin, 1809, p. 37) : "In determining the 
prices of things, time is not considered; while in the deter- 
mination of interest, it is principally time which is taken 
into account." He does not see that the time of production 
and the time of circulation enter into the determination of 
the price of commodities, and that this is precisely what de- 
termines the rate of profit for a given time of turn-over of 
capital, while the determination of profit for a certain time 
in its turn determines that of interest. His sagacity con- 
sists here, as it always does, in seeing the clouds of dust on 
the surface and having the presumption to declare this dust 
to be something mysterious and important. 



Division of ProUt. 421 



CHAPTEK XXII. 

DIVISIOIir OF PEOriT. RATE OF INTEREST. NATURAL. RATE OF 

INTEKEST. 

The object of this chapter, and in general all other phe- 
nomena of credit requiring our consideration later on, can- 
not here be analysed in detail. The competition between 
lenders and borrowers and the resulting minor fluctuations of 
the money-market fall outside of the scope of our inquiry. 
The circle described by the rate of interest during the indus- 
trial cycle requires for its presentation the analysis of this 
cycle itself, but this is likewise beyond our intentions for the 
present. The same is true of the greater or lesser approximate 
equalisation of the rate of interest in the world market. We 
merely intend here to analyse the independent fonn of interest- 
bearing capital and the individualisation of interest as differ- 
entiated from profit. 

Since interest is merely a part of profit, paid according 
to our assumption by the industrial capitalist to the money- 
capitalist, the maximum limit of interest is marked by profit 
itself, and in that case the portion pocketed by the productive 
capitalist would be equal to zero. Aside from exceptional 
cases, in which interest might be actually larger than profit 
and could not be paid out of profit, one might consider as the 
maximum limit of interest the entire profit minus that por- 
tion (to be subsequently analysed), which resolves itself into 
wages of superintendence. The minimum limit of interest is 
wholly undefinable. It may fall to any depth. But counter- 
acting circumstances will always appear and lift it again 
above this relative minimum. 

" The relation between the amount paid for the use of some 
capital and this capital itself expresses the rate of interest, 
measured in money." " The rate of interest depends, 1), on 
the rate of profit; 2), on the proportion in which the total 



422 Capitalist Production, 

profit is divided between the lender and the borrower." 
(Economist J January 22nd, 1S53.) " Since that which is 
paid as interest for the use of that which is borrowed is a 
part of the profit, which the borrowed is able to produce, this 
interest must always be regulated by that profit." (Massie, 
1. c, p. 49.) 

Let us first assume, that a fixed relation exists between the 
total profit and that one of its parts, which has to be paid as 
interest to the money-capitalist. In this case it is evident, 
that the interest will rise or fall with the total profit, and 
this profit is determined by the general rate of profit and its 
fluctuations. For instance, if the average rate of profit were 
20% and the interest one-quarter of the profit, then the rate 
of interest would be 5% ; if the rate of profit were only 16%, 
the rate of interest would be 4%. With a rate of profit of 
20%, the rate of interest might rise to 8%, and yet the in- 
dustrial capitalist would still make the same profit as he would 
with the rate of profit at 16% and the rate of interest at 4%, 
namely 12%. If the interest should rise only to 6 or Y%, 
he would keep a still larger share of the profit. If the inter- 
est amounted to a constant quota of the average profit, it would 
follow, that to the extent that the general rate of profit would 
rise, the absolute difference between the total profit and the 
interest would increase, and to the same extent would that 
portion of the total profit increase, which the productive capi- 
talist would pocket, and vice versa. Take it that the interest 
amounts to one-fifth of the average profit. One-fifth of 10 
is 2 ; difference between total profit and interest 8. One-fifth 
of 20 is 4; difference 20 — 4 = 16. One-fifth of 25 is 5 j 
difference 25 — 5 = 20. One-fifth of 30 is 6 ; difference 
30 — 6 = 24. One-fifth of 35 is Y ; difference 35 — Y = 28. 
The different rates of interest of 4, 5, 6, 7% would in this 
case always represent one-fifth of the total profit. If the rates 
of profit are different, then different rates of interest may 
represent the same aliquot parts of the total profit, or the same 
percentage of the total profit. With such constant proportions 
of interest, the industrial profit (the difference between the 
total profit and the interest) would be so much greater, the 



Rate of Interest. 423 

higher the average rate of profit would be, and vice versa. 

Assuming all other conditions to be equal, in other words, 
assuming the proportion between interest and total profit to 
be more or less constant, the productive capitalist will be able 
and willing to pay a higher or lower interest directly propor- 
tional to the level of the rate of profit.^ ^ Since we have 
seen, that the height of the rate of profit is inversely propor- 
tional to the development of capitalist production, it follows 
that the high or low rate of interest in a certain country is to 
the same extent inversely proportional to the degree of indus- 
trial development, at least so far as differences in the rate of 
interest actually expresses differences in the rates of profit. 
And this mode of regulating interest applies even to its aver- 
age. 

In any event the average rate of profit is the ultimate limit 
determining -the maximum limit of interest. 

The fact that the rate of interest is related to the average 
profit will be considered more at leng'th immediately. When- 
ever a certain whole, such as profit, is to be divided between 
two parties, the first thing to be considered is the magnitude 
of the whole. The magnitude of the profit is determined by 
its average rate. Assuming the average rate of profit, and 
thus the magnitude of profit, for a capital of a certain size, 
to be given (for instance 100), it is evident that the vari- 
ations of interest will be inversely proportional to those of 
the profit remaining in the hands of the capitalist working 
with a borrowed capital. And the circumstances, which de- 
termine the amount of profit to be divided (the values pro- 
duced by unpaid labor), differ widely from those, which 
determine its distribution between these two kinds of capital- 
ists, and frequently produce effects in opposite directions.^ ^ 

If we observe the cycles of variation, in which modern in- 

82 " The natural rate of interest is governed by the profits of trade to particulars." 
(Massie, 1. c, p. 51.) 

83 At this place the manuscript contains the following statement: "The course 
of this chapter shows, that it is preferable, before analysing the laws of the 
distribution of profits, to ascertain first the way in which the division of quanti- 
ties becomes one of quality. In order to make a transition to this end from the 
preceding chapter, nothing is needed but the provisional assumption, that interest 
is a certain indefinite portion of the profit. 



^24 Capitalist Production. 

dustry moves along — condition of rest, increasing activity, 
prosperity, overproduction, crisis, stagnation, condition of rest, 
etc., which fall outside of the scope of our analysis — we 
shall find, that a low rate of interest generally corresponds to 
periods of prosperity, or of extra profit, a rise of interest to 
the transition between prosperity and its reverse, and a maxi- 
mum of interest up to a point of extreme usury to the period 
of crises.^* With the summer of 1843 came a period of re- 
markable prosperity ; the rate of interest, which had still been 
4^% in the spring of 1842, fell to 2% in the spring and sum- 
mer of 1843; ^5 in September it fell even to 1^%. (Gil- 
bart, I, p. 166); whereupon it rose to 8% and more during 
the crisis of 184Y. 

It may happen, however, that low interest is found in times 
of stagnation, and moderately rising interest in times of in- 
creasing activity. 

The rate of interest reaches its highest point during crises, 
when money must be borrowed in order to meet payments at 
any cost. Since a rise of interest implies a fall in the price 
of securities, this offers at the same time a fine opportunity to 
people with available money-capital, who may acquire posses- 
sion at cut-rate prices of such interest-bearing securities as 
must at least regain their average price in the regular course 
of things, as soon as the rate of interest falls again.^^ 

However, there is also a tendency of the rate of interest to 
fall, quite independently of the fluctuations of the rate of 
profit. This is due to two main causes. 

I. " Let us assume that capital were never borrowed for 

^* " In the first period, immediately after a time of depression, money is plentiful 
without any speculation; in the second period money is plentiful and speculation 
flourishing; in the third period speculation begins to let up and money is in 
demand; in the fourth period money is scarce and the depression starts in." 
(Gilbart, 1. c, p. 144.) 

"^ Tooke explains this by " the accumulation of surplus capital necessarily accom- 
panying the scarcity of profitable employment for it in previous years, by the release 
of hoards, and by the revival of confidence in commercial prospects." {History 
of Prices from 1839 till 1847. London, 1848, p. 54.) 

'^ " An old customer of a banker was refused a loan upon a 200,000 pounds 
sterling bond; when about to leave to make known his suspension of payment, he 
was told there was no necessity for the step, under the circumstances the banker 
would buy the bond at 150,000 pounds sterling." {The Theory of the Exchanges. 
The Bank Charter Act of 1844, etc. London, 1869, p. 80.) 



Rate of Interest. 425 

any other but productive investments, it is nevertheless pos- 
sible, that the rate of interest may vary without any change 
in the rate of gross profits. Tor, as a people progresses in 
the development of wealth, there arises and grows more and 
more a class of people, who find themselves possessed of funds 
through the labors of their ancestors, and who can live on the 
mere interest on them. Many, having actively participated 
in business in their youth and prime, retire, in order to live 
quietly in their old age on the interest of the sums accumu- 
lated by them. These two classes have a tendency to in- 
crease with the growing wealth of the country ; for those who 
start out with a moderate capital acquire more easily an in- 
dependent fortune than those, who start out with little. In 
old and rich countries, therefore, that portion of the national 
capital, whose owners do not care to invest it themselves, 
makes up a larger proportion of the total productive capital 
of society than in newly settled and poor countries. How 
numerous is not the class of annuity-holders in England ! In 
proportion as the class of annuity-holders increases, that of 
the capital loaners increases also, for they are both the same." 
(Eamsay, Essay on the Distribution of Wealth, p. 201) 

II. The development of tlie credit system, and with it the 
continually -growing control of the industrials and merchants 
over the money savings of all classes of society by the co-op- 
eration of bankers, and the progressive concentration of these 
savings into such volumes as will enable them to serve as 
money-capital, must also depress the rate of interest some- 
what We shall discuss this more at length later. 

With reference to the determination of the rate of interest, 
Ramsay says that it " depends in part on the rate of gross 
profits, in part on the proportion in which this is divided into 
interest and profits of enterprise. This proportion depends 
on the competition between lenders and borrowers of capital. 
This competition is influenced, but not exclusively regulated, 
by the prospective rate of gross profits.^''' Competition is 

" Since the rate of interest is on the whole determined by the average rate of 

profit, extraordinary swindling may often go hand in hand with a low rate of 

interest. Instance the railroad swindle in the summer of 1844. The rate of 
interest of the Bank of England was not raised to 3% until October 16th, 1844. 



426 . Capitalist Production. 

not exclusively regulated thereby, because on one side many 
are borrowing without any intention of productive invest- 
ment, and because on the other the magnitude of the total 
loanable capital changes with the wealth of the country, in- 
dependently of any change in the gross profits." (Ramsay, 
1. c, p. 206, 207.) 

In order to find the average rate of interest, it is necessary, 
1), to calculate the average rate of interest during its varia- 
tions in the great industrial cycles; 2), to find the rate of 
interest in such investments as require loans of capital for a 
long time. 

The average rate of interest prevailing in a certain coun- 
try — as differentiated from the continually fluctuating mar- 
ket rates — cannot be determined by any law. In this sense 
there is no such thing as a natural rate of interest, such as 
economists speak of when mentioning a natural rate of profit 
and a natural rate of wages. Massie has justly said with ref- 
erence to this (p. 49) : " The only thing which any man 
can be in doubt about on this occasion, is, what proportion of 
these profits do of right belong to the borrower, and what 
to the lender; and this there is no other method of determin- 
ing than by the opinions of borrowers and lenders in general ; 
for right and wrong, in this respect, are only what common 
consent makes so." The balancing of demand and supply — 
assuming the average rate of profit to be a fact — does not 
signify anything here. Wherever else this formula serv^es as 
an excuse (and is then practically correct) it is used to find 
the fundamental rule, which is independent of competition 
and rather determines it, this rule indicating the regulating 
limits, or the limiting magnitudes, of competition; this for- 
mula serves particularly as a help to those, who are bounded 
by the horizon of practical competition, its phenomena, and 
the conceptions arising from them, and who try tliereby to 
get a rather shallow grasp of the internal connections of 
economic conditions within the sphere of competition. It is 
a method by which to pass from the variations that go with 
competition to the limits of these variations. This is not so 
in the case of the average rate of interest. There is no reason 



Rate of Interest. 427 

bj which the idea could be justified, that the average con- 
ditions of competition, a balance between lenders and borrow- 
ers, should secure for the lender a rate of interest of 3, 4, 5 %, 
etc., on his capital, or a certain percentage of the gross profits, 
say 20% or 50%. Whenever competition as such deter- 
mines anything in this matter, its determination is a matter 
of accident, purely empirical, and only pedantry or fantas- 
ticalness can attempt to represent this accidental character as 
something necessary.^^ ]S[othing is more amusing than to 
listen in the reports of Parliament of 1857 and 1858 con- 
cerning bank legislation and commercial crises to the rambling 
twaddle of directors of the Bank of England, London bankers, 
provincial bankers, and theoretical professionals, when re- 
ferring to " the real rate produced." They never get beyond 
such commonplaces as that " the price paid by loanable cap- 
ital probably varies with the supply of such capital," that 
" a high rate of interest and a low rate of profit cannot exist 
together in the long run," and similar specious platitudes.^^ 
Custom, legal tradition, etc., have as much to do with the de- 
termination of the average rate of interest as competition it- 
self, so far as this rate exists not merely as an average figure, 
but as an actual magnitude. An average rate of profit has 

^ For instance, J. G. Opdyke, in his " Treatise on Political Economy " (New 
York, 1851) makes a very unsuccessful attempt to explain the general extension 
of a rate of interest of 5% by eternal laws. Still more naively proceeds Mr. Karl 
Arnd in " Die naturgeindsse V olkszvirthschaft gegeniiber dem Monopoliengeist und 
dem Kommunismus, etc., Hanau, 1845." There we may read: "In the natural 
course of the production of goods there is only one phenomenon, which, in the 
fully settled countries, seems to be destined to regulate in some measure the rale 
of interest; this is the proportion, in which the quantities of wood of the European 
forests increase through their annual new growth. This new growth takes place, 
quite independently of their exchange value, at the rate of 3 or 4 to 100." (How 
queer that the trees should arrange for their new growth independently of their 
exchange value!) "According to this a fall of the rate of interest below its pres- 
ent level in the richest countries cannot be expected." Page 124. (He means, "be- 
cause the new growth of the trees is independent of their exchange value, even though 
their exchange value may depend on their new growth.) This deserves to be 
called " the primordial rate of forest interest." Its discoverer has made further 
meritorious contributions in this work to " our science " as the " philosopher of the 
dog tax." 

*^ The Bank of England raises and lowers the rate of its discount, always, of 
course, with due consideration of the rate prevailing in the open market, according 
to the imports and exports of gold. " By which gambling in discounts, by antici- 
pation of the alterations in the bank rate, has now become half the trade of the 
great heads of the money centre " — that is, of the London money market. {The 
Theory of the Exchanges, etc., p. 113.) 



428 Capitalist Production. 

to be assumed as a legal rate even in many law disputes, in 
which interest has to be calculated. Now, if we press the in- 
quiry, why the limits of an average rate of interest cannot be 
deduced from general laws, we find the answer simply in the 
nature of interest. It is merely a portion of the average 
profit. The same capital appears in two roles, as a loanable 
capital in the hands of the lender, and as an industrial capi- 
tal, or commercial capital, in the hands of the investing cap- 
italist. But it performs its function as capital only once, and 
produces profit only once. In the process of production it- 
self, the loanable nature of this capital does not play any role. 
To what extent the two parties divide the profit, in which 
they both share, is in itself as much a purely empirical fact 
belonging to the realm of accident as the division of the 
shares of common profit of some corporative business among 
different share holders by percentages. In the division be- 
tween surplus-value and wages, on which the determination 
of the rate of profit essentially rests, the decision is made by 
two very different elements, labor-power and capital; these 
are functions of two independent variables, which limit one 
another; and their qualitative difference is the source of the 
quantitative division of the produced value. We shall see 
later that the same takes place in the division of surplus-value 
between rent and profit. But nothing of the kind occurs in 
the case of interest. In this case the qualitative differentia- 
tion, as we shall see immediately, proceeds rather from the 
purely quantitative division of the same lot of surplus-value. 
From what has gone before it follows that there is no such 
thing as a " natural " rate of interest. But while, in distinc- 
tion from the general rate of profit, there is on one side no 
general law, by which the limits of the average interest, or 
average rate of interest, may be determined and differentiated 
from the continually fluctuating market rates of interest, be- 
cause it is merely a question of dividing the gross profit be- 
tween two possessors of capital under different titles, there is 
on the other side the fact that the rate of interest, whether it 
be the average or the prevalent market rate, appears as a uni- 



Rate of Interest. 429 

form, definite and tangible magnitude in a very different way 
from the general rate of profit/'^ 

The rate of interest holds a similar relation to the rate of 
profit as the market price of a commodity does to its value. 
To the extent that the rate of interest is determined by the 
rate of profit, it is so always by the general rate of profit, 
not by any specific rates of profit, which may prevail in some 
particular lines of industry, and still less by any extra profit, 
Avhieh some individual capitalist may make in some particular 
line of business.''^ It is a fact, then, that the general rate of 
profit re-appears as an empirical, given, reality in the average 
rate of interest, although the latter is not a pure or reliable 
expression of the former. 

It is true, that the rate of interest itself differs according 
to the different classes of securities offered by the borrowers 
and according to the length of time for which the money is 
borrowed; but it is uniform witliin every one of these classes 
at a given moment. This distinction, then, does not militate 
against a fixed and uniform shape of the rate of interest. '^^ 

70 " • 'pjjg price of commodities fluctuates ' continually; they are all made for 
different uses; the money serves for all purposes. The commodities, even those of 
the same kind, differ according to quality; cash money is always of the same value, 
or at least is assumed to be so. Thus it happens that the price of money, which we 
designate by the term interest, has a greater stability and uniformity than that of 
any other thing." (J. Steuart, Principles of Political Economy, French translation, 
1789, IV, p. 27.) 

" " This rule of dividing profits is not, however, to be applied particularly to 
every lender and borrower, but to lenders and borrowers in general . . .re- 
markably great and small gains are the reward of skill and the want of under- 
standing, which lenders have nothing at all to do with; for as they will not suffer 
by the one, they ought not to benefit by the other. What has been said of par- 
ticular men in the same business is applicable to particular sorts of business; if 
the merchants and tradesmen employed in any one branch of trade get more by 
what they borrow than the common profits made by other merchants and 
tradesmen of the same country, the extraordinary gain is theirs, though it re- 
quired only common skill and understanding to get it; and not the lenders,' who 
supplied them with money . . . for the lenders would not have lent their 
money to carry on any business or trade upon lower terms than would admit of 
paying so much as the common rate of interest; and therefore they ought 
not to receive more than that, whatever advantage may be made by their money." 
(Massie, 1. c, p. 50, 51.) 

" [Bank rate 5%. Market rate of discount 60 days' drafts, 5J|%. The same 
for 3 months' drafts 3^%. The same for 6 months' drafts 3 5/16%. Loans to 
bill brokers, day to day, 1 to 2%. The same for one week 3%. Last rate for 
fortnightly loans to stockholders 4^4 to 5%. Deposit allowance (banks) 3J^%. The 



430 Capitalist Production. 

The average rate of interest appears in every country for 
long epochs as a constant magnitude, because the general rate 
of profit — in spite of the continual variation of the partic- 
ular rates of profit, in which a variation in one sphere is offset 
by an opposite variation in another sphere — varies only in 
long intervals. Its relative constancy is revealed in this more 
or less constant nature of the average rate, or common rate, 
of interest. 

As concerns the continually fluctuating market rate of in- 
terest, it exists at any moment as a fixed magnitude, the same 
as the market price of commodities, because all the loanable 
capital as an aggTCgate mass is continually facing the invested 
capital, so that the relation between the supply of loanable 
capital on one side, and the demand for it on the other, de- 
cide at any time the market level of interest. This is so 
much more the case, the more the development and simul- 
taneous concentration of the credit system impregnates the 
loanable capital with a general social character, and throws 
it all at one time on the market. On the other hand, the gen- 
eral rate of profit always exists as a mere tendency, as a move- 
ment to compensate specific rates of profit. The competition 
between capitalists — ' which is itself this movement toward 
an equilibrium — ' consists in this case in their activity of 
gradually withdrawing capital from spheres, in which the 
profit stays for a long time below the average, and in the 
same way taking capital into spheres, in which the profit is 
above the average. Or it may also consist in their distribut- 
ing additional capital gradually and in varying proportions 
between these spheres. It is always a matter of a continual 
variation between supply and demand of capital with refer- 
ence to different spheres, never a simultaneous mass effect, 
as it is in the determination of the rate of interest. 

We have seen that interest-bearing capital, although a cate- 
gory absolutely different from a commodity, becomes a pe- 
culiar commodity, so that interest becomes its price, Avhich 

same (discount houses) 3 to 3%%. How large this difference may be for one 
and the same day is shown by the preceding figures of the rate of interest of the 
London money market on December 9th, 1S89, taken from the city article of the 
Daily News of December 10th. The minimum is 1%, the maximum 5%. F. E.] 



Rate of Interest. 431 

is fixed at any time by supply and demand, just as the 
market price of an ordinary commodity is fixed. The 
market rate of interest, while continually oscillating, ap- 
pears therefore at any moment just as constant!}' fixed and 
uniform as the prevailing market price of commodities. 
The money-capitalists offer this commodity, and the invest- 
ing capitalists buy it and make a demand for it. This 
does not take place in the equalisation of profits toward a gen- 
eral rate of profit. If the prices of commodities in a certain 
sphere are below or above the price of production (leaving 
aside any oscillations, which are found in every business and 
are due to fluctuations of the industrial cycles), a balance is 
effected by an expansion or restriction of production. This 
signifies an expansion or restriction of the quantities of com- 
modities thrown on the market by industrial capitalists, by 
means of immigTation or emigration of capital to and from 
particular spheres. It is by such a compensation of the aver- 
age market prices of commodities to prices of production that 
the deviations of specific rates of profit from the general, or 
average, rate of profit are corrected. This process does not, 
and cannot, at any time assume the appearance as though the 
industrial or mercantile capital as such w^ere commodities 
seeking a buyer, but it does in the case of interest-bearing 
capital. To the extent that this process is perceptible, it is 
so only in the oscillations and compensations of the market 
prices of commodities to prices of production, not in any di- 
rect fixation of the average profit. The general rate of profit 
is actually determined, 1), by the surplus-value produced by 
the capital; 2), by the proportion of this surplus-value to the 
value of the total capital; and, 3), by competition, but only 
to the extent that this is a movement, by which capitals in- 
vested in particular spheres seek to draw equal dividends out 
of this surplus-value in proportion to their relative magni- 
tudes. The general rate of profit, then, derives its determina- 
tion actually from causes, which are quite different and far 
more profound than those of the market rate of interest, which 
is directly and immediately determined by the proportion be- 
tween supply and demand. It is, therefore, not such a tan- 



432 Capitalist Production. 

gible and obvious fact as the rate of interest. The particu- 
lar rates of interest in the different spheres of production are 
themselves more or less unsettled; but so far as they are per- 
ceptible, it is not their uniformity, but their differences, which 
appear. The general rate of profit itself appears only as the 
minimum limit of profit, not as the empirical and directly 
visible shape of the actual rate of profit. 

In emphasizing this difference between the rate of inter- 
est and the rate of profit, we still leave out of consideration 
the following two circumstances, which favor the consolida- 
tion of the rate of interest: 1), The historical pre-existence 
of interest-bearing capital and the existence of a traditionally 
sanctioned general rate of interest; 2), the far greater direct 
influence exerted by the world market on tlie fixation of the 
rate of interest, independently of the economic conditions of 
a certain country, compared to its influence on the rate of 
profit. 

The average profit does not appear as a directly existing 
fact, but merely as a final result of the compensation of oppo- 
site fluctuations, to be ascertained by analysis, !N^ot so the 
rate of interest. It is, at least in its local validity, a daily 
fixed thing, a fact which serves even to industrial and mercan- 
tile capitals as a prerequisite and figure in their calculations. 
It becomes a general faculty of every sum of money of 100 
pounds sterling to yield 2, 3, 4, 5%. Meteorological reports 
do not register the stand of the barometer and thermometer 
more accurately than the reports of the Bourse do the stand 
of the rate of interest, not for this or that capital, but for the 
money-capital on the market, for the available loanable capi- 
tal in general. 

On the money market only lenders and borrowers face one 
another. The commodity has the same form, money. All 
specific forms of capital according to its investment in par- 
ticular spheres of production or circulation are here blotted 
out. It exists here in the undifferentiated, homogenous, form 
of independent value, money. The competition of the indi- 
vidual spheres ceases here. They are all thrown together as 
borrowers of money, and capital likewise faces all of them in 



Rate of Interest. 433 

a form, in which it is as yet indifferent to its definite invest- 
ment in this or that specific manner. The character worn bj 
industrial capital only in its movement and competition be- 
tween individual spheres, the character of a common capital 
of a class comes into evidence here in full force by the de- 
mand and supply of capital. On the other hand, money-cap- 
ital on the money market has actually that form, in which it 
may be distributed as a common element among the capital- 
ists in the various spheres, regardless of its specific employ- 
ment, as the requirements of production in each individual 
sphere may dictate. Add to this that with the development 
of large scale industry money-capital, so far as it appears on 
the market, is not represented by some individual capitalist, 
not by the owner of this or that fraction of the capital on the 
market, but assumes more and more the character of an or- 
ganised mass, which is far more directly subject to the con- 
trol of the representatives of social capital, the bankers, than 
actual production is. Under these circumstances, not only 
the demand for loanable capital is expressed with the full 
force of a class, but also its supply appears as loanable capi- 
tal in masses. 

These are some of the reasons, why the general rate of 
profit appears as a vanishing shape of mist compared to the 
definite rate of interest, which, while fluctuating in its magni- 
tude, yet faces all borrowers as a fixed fact, because it varies 
uniformly for all of them. In like manner the variations in 
the value of money do not prevent it from having the same 
value for all commodities. In like manner the market prices 
of commodities fluctuate daily, yet this does not prevent them 
from being reported daily. In like manner, the rate of in- 
terest is regularly reported as " the price of money." It is 
so for the reason that capital itself is here offered in the 
form of money as a commodity. The fixation of its price is 
thus a fixation of its market price, as it is with all other com- 
modities. Thus the rate of interest always appears as the 
general rate of interest, as so much for so much money, as a 
definite quantity. ISTot so the rate of profit. It may vary 
even witliin the same sphere for commodities with the same 

2B 



434 Capitalist Production. 

price, according to the different conditions under which dif- 
ferent capitals produce the same commodity. For the rate 
of profit of the individual capital is determined, not by the 
market price of a commodity, but by the difference between 
the market-price and the cost-price. And these different 
rates of profit, first within the same sphere and then between 
different spheres themselves, can be balanced only by contin- 
ual fluctuations. 



(Kote for later elaboration) : A specific form of credit. 
It is known that when money serves as a means of payment 
instead of as a means of purchase, the commodity is trans- 
ferred, but its value is not realised until later. If payment 
is not made until after the commodity has again been sold, 
then this sale does not seem to be the result of the purchase, 
but it is by this sale that the purchase is realised. In other 
words, the sale becomes a means of purchase. — Secondly ; 
Titles to debts, bills of exchange, etc., become means of pay- 
ment for the creditor. — ' Thirdly : The compensation of ti- 
tles to debts replaces the money. 



CHAPTER XXIII. 

INTEOBEST AND PROFIT OF EiNTEKPRISE. 

Ikteeest, as we have seen in the two preceding chapters, 
seems to be originally, is originally, and remains in fact 
merely a portion of profit, of surplus-value, which the invest- 
ing capitalist, whether industrial or commercial, has to pay 
over to the owner and lender of money-capital whenever he 
uses loan capital instead of his own. If he employs only his 
own capital, no such division of profit takes place; it is all 
his. In fact, to the extent that the owners of capital employ 
it themselves in the process of reproduction, they do not com- 
pete in the determination of the rate of interest. This alone 
shows that the category of interest, an impossibility without 
a determination of the rate of interest, is alien to the move- 
ments of industrial capital itself. 



Interest and Profit. 435 

" The rate of interest may be defined to be that propor- 
tional sum which the lender is content to receive, and the 
borrower to pay, for a year or for any longer or shorter pe- 
riod for the nse of a certain amount of moneyed capital 
. . . when the owner of capital employs it actively in re- 
production, he does not come under the head of those cap- 
italists, the proportion of whom, to the number of borrowers, 
determines the rate of interest." (Th. Tooke, History of 
Prices, IsTewmarch ed. London, 1857, II, p. 355.) It is in- 
deed only the separation of capitalists into money-capitalists 
and industrial capitalists, which transforms a portion of the 
profit into interest, which creates the category of interest at 
all ; and it is only the competition between these two kinds of 
capitalists which creates the rate of interest. 

So long as capital serves in the process of reproduction — 
even assuming that it belongs to the industrial capitalist him- 
self, so that he has no need of paying it back to some lender . — 
just so long the capitalist has at his disposal as a private in- 
dividual, not this capital itself, but only the profit, which he 
may spend as revenue. So long as his capital performs the 
functions of capital, it belongs to the process of reproduction, 
it is tied up in that process. He is indeed its owner, but 
this ownership does not enable him to dispose of it in some 
other way, so long as he uses it as capital for the exploitation 
of labor. It is the same with the money-capitalist. So long 
as his capital is loaned out and serves as money-capital, it 
brings him as interest a portion of the profit, but he cannot 
dispose of the principal. This becomes evident, whenever he 
loans his capital, say, for one year, or longer, and receives 
interest at certain stipulated times without recovering his 
principal. But even the return of the principal does not 
make any difference here. If he gets it back, then he must 
always loan it out again, so long as he expects it to produce 
the effects of capital, in this ease of money-capital, for him. 
While he is keeping it in his own hands, it collects no interest, 
it does not act in the cajoacity of capital; and so long as it 
gathers interest and serves as capital, it is not in his hands. 
This accounts for the possibility to loan capital for all eter- 



436 Capitalist Production. 

nity. The following remarks of Tooke against Bosanquet are, 
therefore, entirely wrong. He quotes Bosanquet (Metallic, 
Paper, and Credit Currency, p. Y3) : " If the rate of interest 
were depressed to 1%, then borrowed capital would be al- 
most on a par with owner's capital." Tooke makes the fol- 
lowing comment on this : " That a capital borrowed at this, 
or even at a lower rate, should be considered as being almost 
on a par with one's own capital is such a strange contention, 
that it would hardly deserve any serious consideration, did 
it not come from so intelligent a writer, who is so well in- 
formed on particular points of his subject. Has he over- 
looked the fact, or does he hold it to be so unimportant, that 
his assumption implies the condition of return payment ? " 
(Th. Tooke, An Inquiry into the Currency Principle, 2nd. 
edition, London, 1844, p. 80.) If interest were equal to 
zero, then the industrial capitalist working with a borrowed 
capital would be on a par with a capitalist working with his 
own capital. Both of them would pocket the same average 
profit, and capital, whether borrowed or the owner's, serves as 
capital only to the extent that it produces profit. The condi- 
tion of return payment would not alter this in the least. The 
more the rate of interest approaches zero, falling, for in- 
stance, to 1%, the more borrowed capital is placed on a par 
with owner's capital. So long as money-capital is expected 
to act in the capacity of money-capital, it must always be 
loaned out again and again, and this must take place at the 
prevailing rate of interest, say 1%, and always to the same 
class of industrial and commercial capitalists. So long as 
these perform the functions of capitalists, the only difference 
between one working with a borrowed and one working with 
his own capital is that the one has to pay interest and the 
other has not ; that the one pockets the whole profit p, and the 
other only p — i, profit minus interest. To the extent that 
the interest approaches zero, p — z becomes equal to p, and 
to the same extent do both capitals stand on a par. The one 
must pay back the capital and borrow it again ; but the other, 
so long as his capital is expected to perform its function, must 
likewise advance it again and again to the process of produe- 



Interest and Profit. /^2>7 

tion and cannot dispose of it freely without any dependence 
upon this process. The only remaining difference between 
the two is the obvious one that the one is the owner of his cap- 
ital and the other is not. 

The question which arises here is this : How is it that this 
purely quantitative division of profit into net profit and in- 
terest turns into a qualitative one? In other words, how is 
it that even the capitalist who employs only his own capital, 
and not a borrowed one, ranges a portion of his gross profit 
under the specific category of interest and calculates it sepa- 
rately as such ? And furthermore, why is all capital, whether 
borrowed or not, differentiated in itself as interest-bearing 
capital from net profit producing capital ? 

It is understood that not every accidental quantitative di- 
vision of profit turns in this manner into a qualitative one. 
For instance, some industrial capitalists associate for some 
business and divide the profits among themselves according to 
some legal agreement. Others carry on their business, each 
by himself, without any associate. These last do not calcu- 
late their profit under two heads, one part as individual profit, 
the other as profits of the company for associates who do not 
exist. In this case the quantitative division does not turn 
into a qualitative one. It takes place, when the ownership 
is vested accidentally in several juridical personalities. It 
does not take place, Avhen this is not the case. 

In order to answer this question, we must dwell a little 
longer on the actual point of departure of the formation of 
interest; that is, we must take our departure from the as- 
sumption, that the money-capitalist and the industrial capi- 
talist really face one another, not merely as legally different 
persons, but as persons playing entirely different roles in the 
process of reproduction, or as persons in whose hands the 
same capital really passes through a twofold and wholly dif- 
ferent movement. The one merely loans it, the other em- 
ploys it productively. 

For the productive capitalist, who works with a borrowed 
capital, the gross profit falls into two parts, namely into the 
interest to be paid by the lender and the surplus over the in- 



438 Capitalist Production. 

terest forming his own share of the profit. If the general 
rate of profit is given, then this last portion is determined bj 
the rate of interest ; if the rate of interest is given, then this 
last portion is determined bj the general rate of profit. And 
furthermore: Whatever may be the divergence in any in- 
dividual case of the gross profit, the actual magnitude of value 
of the total profit, from the average profit, it does not alter 
the fact that the portion belonging to the investing capitalist 
is determined by the interest, since this is fixed by the general 
rate of interest (aside from special legal stipulations) and 
assumed to be paid beforehand, before the process of produc- 
tion begins, and before its result, the gross profit, has been 
made. We have seen that the peculiar and specific product 
of capital is surplus-value, or more closely defined, profit. 
But for the capitalist working with a borrowed capital it is 
not the profit, but the profit minus the interest, that portion of 
the profit which remains for him after the interest has been 
deducted. This portion of the profit necessarily appears to 
him as the product of a capital performing its function; and 
so far as he is concerned it is really so, because he is the rep- 
resentative of capital in action. He is its personification to 
the extent that it is in function, and it performs its function to 
the extent that it is profitably invested in industry or com- 
merce and engaged, through its employer, in such operations 
as are prescribed by the line of its industry. In distinction 
from interest, which he has to pay out of the gross profits 
to the lender, the remaining portion of the profit, Avhich he 
pockets, necessarily assumes the form of industrial or com- 
mercial profit, or, to designate it by a term comprising both 
of them, the form of profit of enterprise. If the gross profit 
is equal to the net profit, then the magnitude of this profit 
of enterprise is exclusively determined by the rate of in- 
terest. If the gross profit varies from the average profit, 
then its difference from the average profit (after deducting 
the interest from both of them) is determined by all con- 
stellations causing a temporary deviation, either of the rate 
of profit in any particular sphere from the general rate of 
profit, or of the profit made by some individual capitalist 



Interest and Profit. 439 

in a certain sphere from the average profit of this sphere. 
I^ow, we have seen, that the rate of profit within the process 
of production itself does not depend merely on the surplus- 
value, but also on many other circumstances, for instance, on 
the purchase prices of the means of production, on methods 
more productive than the average, on economies in constant 
capital, etc. And aside from the price of production, it 
depends on special constellations of the market, and in every 
business transaction on the greater or lesser smartness and 
thrift of the individual capitalists, whether, and to what 
extent, a man will buy or sell above or below the price of 
production and thus appropriate in the process of circulation 
a greater or smaller portion of the total surplus-value. At 
any rate the quantitative division of the gross profit turns 
here into a qualitative one, and it does so all the more as the 
quantitative division itself depends on the nature of thing 
that is to be divided, on the manner in which the capitalist 
manages his capital, and on the amount of gross profit it 
yields for him in his capacity as active capitalist. The in- 
vesting capitalist is here assumed not to be the owner of the 
capital. The ownership of capital is vested in the money- 
capitalist, who stands opposed to him. The interest, Avhich 
he pays to the lender, thus appears as that portion of the 
gross profit, which is absorbed by the ownership of capital 
as such. In distinction therefrom, that portion of the profit, 
which falls to the share of the investing capitalist, appears 
then as profit of enterprise, arising solely from the opera- 
tions, or functions, which he performs with the capital in the 
process of reproduction, particularly of those functions, which 
he performs as the impersonator of enterprise in industry or 
commerce. From his point of view, the interest appears 
merely as the fruit of the ovniership of capital, of capital 
" itself " abstracted from the process of capital in reproduc- 
tion, of a capital not " working," not performing its func- 
tion ; while profit of enterprise appears to him as the exclusive 
fruit of the functions, which he performs with the capital, 
a fruit of the movements and performances of capital, of 
performances, which appear to him as his own activity as 



440 Capitalist Production. 

differentiated from the inactivity, the non-participation, of 
the money-capitalist in the process of production. This 
qualitative separation of the two portions of gross profit, 
which makes interest appear as the fruit of abstract capital, of 
the ownership of capital outside of the process of production, 
and profit of enterprise as the fruit of capital performing 
its function in the process of production, of the active role 
played by the employer of capital in the process of repro- 
duction, this qualitative separation is by no means merely a 
subjective point of view of the money-capitalist on one side and 
of the industrial capitalist on the other. It rests upon an 
objective fact, for the interest flows into the hands of the 
money-capitalist, the lender, the mere owner of capital, who 
represents only capital property before the process of pro- 
duction and outside of it; while the profit of enterprise flows 
only into the hands of the investing capitalist, who is not the 
owner of the capital. 

In this way, both the industrial capitalist working with 
borrowed capital and the money-capitalist not working him- 
self with his capital play a role, in which a merely quantita- 
tive division of the gross proflt between two persons having 
two different legal titles to the same capital and to the proflt 
produced by it turns into a qualitative division. One portion 
of the profit appears now as interest, as a fruit coming to 
capital in one of its forms ; the other portion appears as a 
specific fruit of capital in an opposite form, and thus as 
profit of enterprise. One appears as the fruit of mere owner- 
ship of capital, the other as a fruit of the performance of the 
function of capital, as a fruit of capital in process, of the 
functions performed by the active capitalist. And this ossi- 
fication and individualisation of the two parts of the gToss 
profits among themselves, as though they w^ere derived from 
two essentially different sources, now becomes a fixture ' for 
the entire capitalist class and the total capital. And this takes 
place regardless of whether the capital employed by the ac- 
tive capitalist is borrowed or not, and whether the capital 
belonging to the money-capitalist is employed by himself or 
not. The profit of eveiy capital, and consequently the aver- 



Interest and Profit. 441 

age profit established by a mutual compensation of capitals, 
is separated into two qualitatively different, separately in- 
dividualised, and mutually independent parts, to wit, inter- 
est and profit of enterprise, both of wbicli are determined 
by particular laws. The capitalist working with his own 
capital divides the gross profit into interest due to himself 
as its owner lending it to himself, and into profit of enter- 
prise due to himself as an active capitalist performing his 
function, just as does the capitalist working with a borrowed 
capital. For this division, in its qualitative aspects, it be- 
comes immaterial whether the capitalist really has to divide' 
his profit wath another or not. The employer of capital, even 
when working with his own capital, falls apart into two per- 
sonalities, into the mere o^vner of capital and the employer 
of capital; his capital itself, with reference to the categories 
of profit which it yields, falls apart into capital property out- 
side of the process of production and yielding interest of 
itself, and capital in the process of production yielding profit 
of enterprise through its function in the process. 

Interest, then, becomes so firmly established, that it no 
longer appears as a division of gross profits, to which produc- 
tion is indifferent and which takes place only occasionally 
when the industrial capitalist works with the capital of some 
other man. Even when he works with his own capital, his 
profit is separated into interest and profit of enterprise. Thus 
a merely quantitative division turns into a qualitative one. 
It takes place without regard to the fact, whether the indus- 
trial capitalist is, or is not, the owner of the capital employed 
by him. It is no longer a question of different quota of profit 
assigned to different persons, but of two different categories 
of profit holding different relations to the capital, being re- 
lated to different forms of capital. 

It is a simple matter, in view of the foregoing remarks, to 
explain, why this character of qualitative separation becomes 
established for the total social capital and the entire capitalist 
class, as soon as the separation of gross profits into interest 
and profits of enterprise has assumed its qualitative aspect. 

1) This follows from the simple empirical circumstance, 
that the majority of the industrial capitalists, even if in dif- 



442 Capitalist Production. 

ferent proportional numbers, work with their own and with 
borrowed capital, and that the proportion between self-owned 
and borrowed capital changes in different periods. 

2) The transformation of a portion of the gross profits 
into the shape of interest converts the other portion into profit 
of enterprise. The latter is indeed but the antagonistic form 
assumed by the excess of the gross profit over the interest, as 
soon as interest exists as an independent category. The entire 
analysis of the problem, how gross profit is differentiated into 
interest and profit of enterprise, resolves itself into the in- 
quiry, how a portion of the gross profits becomes universally 
ossified and individualised in the shape of interest. I^Tow, 
historically, interest-bearing capital exists as a complete, tra- 
ditional form, and with it interest as a ready subdivision of 
the surplus-value produced by capital, long before the capital- 
ist mode of production and the conceptions of capital and 
profit belonging to it existed. Thus it is that popular con- 
ception still regards money-capital, interest-bearing capital, 
as typical capital, as capital par excellence. Thus, also, we 
find up to the time of Massie the prevailing idea, that it is 
money as such, which is paid in interest. The fact that loaned 
capital yields interest, whether it is actually employed as 
interest or not — even when borrowed only for consumption 
— lends strength to the idea of the independence of this form 
of capital. The best proof of the independence, which inter- 
est seemed to have with reference to profit and interest-bearing 
capital with reference to industrial capital, during the first 
periods of the capitalist mode of production, is that it was 
not until the middle of the 18th century that Massie, and 
after him Hume, discovered the fact that interest is but a 
portion of the gross profit, and that such a discovery was 
necessary at all. 

3) Whether the industrial capitalist works with his owa 
or with borrowed capital, it does not alter the fact that the 
class of money-capitalists face him as a special class of 
capitalists, money-capital as an independent form of capital, 
and interest as the independent form of surplus-value peculiar 
to this specific capital. 



Interest and Profit. 443 

Qualitatively speaking, interest is surplus-value supplied 
by the mere ownership of capital, yielded by capital as such, 
even though its owner remains outside of the process of re- 
production. It is surplus-value realised by capital outside 
of its process. 

Quantitatively speaking, that portion of profit, which forms 
interest, does not seem to be related to industrial or com- 
mercial capital as such, but to money-capital, and the rate 
of this portion of surplus-value, the rate of interest, fortifies 
this relation. For, in the first place, the rate of interest, de- 
spite its dependence upon the general rate of profit, is inde- 
pendently determined, and, in the second place, it appears with 
all its variations as a fixed, uniform, tangible and always 
given relation, just like the market-prices of commodities, 
compared to the intangible rate of profit. If all capital were 
in the hands of the industrial capitalists, there would be no 
interest and no rate of interest. The independent form as- 
sumed by the quantitative division of gross profit creates the 
qualitative one. If the industrial capitalist compares him- 
self to the money-capitalist, only his profit of enterprise dis- 
tinguishes him from the other man, the excess of his gross 
profit over the average interest, the latter being empirically 
given by means of the rate of interest. On the other hand, if 
he compares himself to the industrial capitalist working with 
his own, instead of borrowed capital, the other differs from 
him only as a money-capitalist by pocketing the interest in- 
stead of paying it over to some one else. On either side the 
portion of the gross profit differing from the interest appears 
to him as profit of enterprise, and interest itself as a surplus- 
value yielded by capital as such, which it would yield even 
without any productive employment. 

This is practically correct for the individual capitalist. 
He has the choice, whether he wants to invest his capital as 
an interest-bearing one or as a productive one, regardless of 
whether it exists in the form of money-capital from the out- 
set, or whether it has to be converted into money-capital. But 
to make this conception a general one and apply it to the total 
capital of society, as some vulgar economists do, who even 



444 Capitalist Production. 

go so far as to regard this capital as the source of profit, is, 
of course, preposterous. The idea of a conversion of the total 
capital of society into money-capital without the existence 
of people, who shall buy and utilise the means of production, 
which form the total capital with the exception of relatively 
small portion existing in the shape of money, is sheer non- 
sense. It implies the additional nonsense, that capital could 
yield interest on the basis of capitalist production without 
performing any productive function, in other words, with- 
out producing any surplus-value, of which interest would be 
but a part; that the capitalist mode of production could run 
its course without any capitalist production. If an excessively 
large number of capitalists were to convert their capital into 
money-capital, it would result in an extraordinary depre- 
ciation of money-capital and an extraordinary fall of the rate 
of interest ; many would at once be face to face with the im- 
possibility of living on their interest, and would be com- 
pelled to retransform themselves into industrial capitalists. 
But we repeat that it is a fact for the individual capitalist. 
For this reason, he necessarily considers that part of his aver- 
age profit, which is equal to the average interest, as a fruit 
of his capital as such, apart from the process of production, 
even when he works with his own capital ; and he differ- 
entiates from this portion, from this interest, that surplus of 
the gross profit, which constitutes his profit of enterprise. 

4) (A blank in the manuscript.) 

We have seen that that portion of the profit, which the 
investing capitalist has to pay to the mere owner of bor- 
rowed capital, converts itself into the independent form of a 
portion of profit, which all capital as such, whether bor- 
rowed or not, yields under the name of interest. How large 
that portion shall be is determined by the quotation of the 
average rate of interest. Its origin does not show itself any 
more in anything but the fact that the investing capitalist, 
when owner of his capital, no longer competes in the deter- 
mination of the rate of interest, at least not actively. The 
purely quantitative division of profit between two persons 
having different legal titles to it has turned into a qualitative 



Interest and Proiit. 445 

division, which seems to arise from the nature of capital and 
profit itself. For, as we have seen, as soon as a portion of 
the profit generally assumes the form of interest, the dif- 
ference between the average profit and the interest, or the 
portion of profit exceeding the interest, assumes a form an- 
tagonistic to interest, that of profit of enterprise. These two 
forms, interest and profit of enterprise, exist only as oppo- 
sites. They are not reduced to the surplus-value, of which 
they represent proportional parts cast in different moulds, 
but are merely referred to one another. Because one por- 
tion converts itself into interest, the other portion appears as 
profit of enterprise. 

By profit we always mean average profit here, since the 
variations of individual profit and of profit in different 
spheres, due to the fluctuations of the competitive struggle and 
other circumstances affecting the distribution of the average 
profit, or surplus-value, do not concern us in this analysis. 
This applies quite generally to the foregoing inquiry. 

Interest is then net profit, as Eamsay calls it, which capital 
as such yields, either for the mere lender remaining outside 
of the process of reproduction, or for the owner employing 
his capital productively. For this latter capitalist also, cap- 
ital yields this net profit, not in his capacity as a productive 
capitalist, but of money-capitalist and lender of his own 
capital as an interest-bearing one to himself as an investing 
capitalist. Just as the conversion of money, and of value in 
general, into capital is the constant result of capitalist pro- 
duction, so its existence in the form of capital is its constant 
prerequisite. By its ability to transform itself into means 
of production, it commands continually unpaid labor and 
thereby transforms the process of production and circulation 
of commodities into a production of surplus-value for its 
OAvner. Interest is, therefore, merely the expression of the 
fact, that value in general, in other words, value represent- 
ing materialised labor in its general social form, or value 
assuming the form of means of production in the actual pro- 
cess of production, faces living labor-power as an independent 
power, and is a means of appropriating unpaid labor ; and that 



446 Capitalist Production. 

it is such a power, because it represents the property of an- 
other in opposition to the laborer. But on the other hand, 
this opposition to wage-labor is obliterated in the form of in- 
terest ; for interest-bearing capital as such has not wage-labor, 
but productive capital for its object. The lending capitalist 
faces as such the capitalist performing his actual function in 
the process of reproduction, not the wage-worker, who is ex- 
propriated from the means of production under capitalist pro- 
duction. Interest-bearing capital represents capital as owner- 
ship compared to capital as a function. But to the extent that 
capital does not perform its function, it does not exploit the 
laborers and does not come into opposition to labor. 

On the other hand, profit of enterprise is not in opposition 
to wage-labor, but only to interest. 

1) Assuming the average profit to be given, the rate of 
profit on enterprise is not determined by wages, but by the 
rate of interest. It is high or low inversely as the rate of 
interest is.'^^ 

2) The investing capitalist derives his claim to profits of 
enterprise, and consequently the profit of enterprise itself, 
not from his ownership of capital, but from its production 
function as distinguished from the form, in which it is only 
inert property. This appears as an obviously existing con- 
trast, whenever he is working with a borrowed capital, so 
that interest and profits of enterprise each go to different 
persons. The profit of enterprise arises from the function of 
capital in the process of reproduction, it is a result of the 
operations by which the investing capitalist promotes this 
function of industrial and commercial capital. But to be a 
representative of invested capital is not a sinecure like the 
representation of interest-bearing capital. On the basis of 
capitalist production, the capitalist directs the processes of 
production and circulation. The exploitation of productive 
labor requires exertion, whether he performs it himself or 
has it performed by some one else in his name. In distinction 
from interest, his profit of enterprise appears to him as in- 

" " The profits of enterprise depend upon the net profits of capital, not the 
latter upon the former." (Ramsay, 1. c, p. 214. Net profits with Ramsay always 
mean interest.) 



Interest and ProHt. 447 

dependent of the ownership of capital, it seems to be the 
result of his function as a non-proprietor — a laborer. 

Under these circumstances his brain necessarily conceives 
the idea, that his profit of enterprise, far from being in op- 
position to wage-labor and representing only the unpaid labor 
of others, is rather itself wages of lahor, wages of superin- 
tendence of labor. These wages are superior to those of the 
common laborer, 1) because they pay for more complicated 
labor, 2) because the capitalist pays them to himself. The 
fact that his function as a capitalist consists in creating 
surplus-value, which is unpaid labor, and to create it under 
the most economical conditions, is entirely forgotten over the 
contrast, that the interest falls to the share of the capitalist, 
even if he does not perform any capitalist function and is 
merely the owner of capital; and that, on the other hand, the 
profit of enterprise falls to the share of the investing capital- 
ist, even if he is not the owner of the capital, which he em- 
ploys. The antagonistic form of the two parts, into which 
profit, or surplus-value is divided, leads him to forget, that 
both parts- are surplus-value, and that this division does not 
alter the nature, origin, and living conditions of surplus- 
value. 

In the process of reproduction, the investing capitalist rep- 
resents capital as the property of another in opposition to 
the wage-laborers, and the money-capitalist, represented by 
the investing capitalist, shares in the exploitation of labor. 
The fact, that the investing capitalist can perform his func^ 
tion or employ means of production as capital only as the 
personification of the means of production in opposition to 
the laborers, is forgotten over the antagonism between the 
function of capital in the process of reproduction and the 
mere ownership of capital outside of the process of reproduc- 
tion. 

In fact, the forms assumed by the two parts of profit, of 
surplus-value, when divided into interest and profit of enter- 
prise, do not express their relation to labor, because their rela- 
tion refers only to themselves and to the profit, or rather to 
the surplus-value as a whole compared to them as parts of 



448 Capitalist Production. 

this unit. The proportion in which the profit is divided, and 
the different legal titles, by which this division is sanctioned, 
are based on the assumption that profit is already in existence. 
If, therefore, the capitalist is the owner of the capital, which 
he employs, he pockets the whole profit, or surplus-value. 
It is immaterial to the laborer, whether the capitalist pockets 
the whole profit, or whether he has to pay over a part of it 
to some other person, who has a legal claim to it. The rea- 
sons for dividing the profit among two kinds of capitalists 
thus turn surreptitiously into reasons for the existence of 
the surplus-value to be divided, which the capital as such 
draws out of the process of reproduction quite apart from 
any subsequent division. Seeing that tlie interest is opposed 
to the profit of enterprise, and the profit of enterprise to the 
interest, that they are both opposed to one anotlier, but not 
to labor, it follows that both profit of enterprise plus interest, 
in other words, the total profit, and further the surplus-value, 
are derived — from what ? From the antagonistic form of 
its two parts ! But the profit is produced, before this division 
takes place, and before there can be any mention of it. 

Interest-bearing caj^ital stands the test of such only to the 
extent that borrowed money is actually converted into capital, 
and that a surplus is produced with it, of which the interest 
is a part. But this does not militate against the fact, that 
the faculty of drawing interest is innate in it outside of the 
process of production. So does labor-power evince its faculty 
of producing value only so long as it is employed and ma- 
terialised in the labor-process; yet this does not argue against 
the fact, that labor-power is potentially a faculty of creating 
values, which does not arise out of the mere process of pro- 
duction, but is rather antecedent to it. As a faculty creat- 
ing value, it is bought. One might also buy it without set- 
ting it to work productively. It may be used for purely 
personal ends, for instance, for personal service, etc. So it 
is with capital. It is the borrower's affair, whether he em- 
ploys it as capital, actually setting in motion its inherent 
faculty of producing surplus-value. What he pays, is in 



Interest and Profit. 449 

either case the surplus-value inherently latent in the com- 
modity capital. 



Let us now consider profit of enterprise more in detail. 

Since the specific social faculty of capital under capitalist 
production, that of being property in the hands of one and 
yet commanding the labor-power of another, becomes fixed, 
so that interest appears as a part of the surplus-value pro- 
duced by capital in this interrelation, the other part of the 
surplus-value, the profit of enterprise, must necessarily ap- 
pear as derived, not from capital as such, but from the process 
of production, separated from its social faculty, which is 
already expressed as a distinct mode of existence by the term 
interest in capital. Now, separated from capital, the process 
of production is simply a labor-process. Hence the industrial 
capitalist as differentiated from the owner of capital does 
not appear, in this case, as a functionary of capital, but as 
a functionary separated from capital, as a simple agent of the 
labor-process, as a laborer, and specifically as a wage-laborer. 

Interest itself expresses precisely the existence of the con- 
ditions of labor in the form of capital, in their social an- 
tagonism to labor, and in their transformation into personal 
powers in opposition to labor and dominating it. Interest 
represents the mere ownership of capital as a means of appro- 
priating the products of the labor of others. But it represents 
this character of capital as something, which belongs to it 
outside of the process of production, and which is not by any 
means a result of the specifically capitalist nature of this 
process of production itself. Interest places this process in 
such a light, that it does not seem opposed to labor, but rather 
without any relation to labor and simply the relation of one 
capitalist toward another. It thus assumes a form which 
places it outside of the relation of capital toward labor, and 
renders it indifferent toward this relation. In interest, then, 
which is that specific form of profit, in which the antagonistic 
character of capital assumes an independent form, this is 
done in such a way, that the antagonism here appears com- 



2C 



45^ Capitalist Production. 

pletely obliterated and left out of consideration. Interest is 
a relation between two capitalists^, not between a capitalist 
and a laborer. 

On tbe other hand, this form of interest bestows upon the 
other portion of profit the qualitative form of profit of enter- 
prise, and, further on, of wages of superintendence. The 
specific functions, which the capitalist as such has to per- 
form, and which precisely differentiate him from the laborer 
and bring him into opposition to the laborer, are presented 
as mere functions of labor. He creates surplus-value, not 
because he performs the work of a capitalist^ but because he 
also works aside from his capacity as a capitalist. This por- 
tion of surplus-value is thus no longer surplus-value, but its 
opposite, an equivalent for labor performed. Owing to the 
fact that the estranged character of capital, its antagonism 
to labor, has been relegated to a place outside of the actual 
process of exploitation, namely to the interest-bearing capital, 
this process of exploitation itself appears as a simple labor 
process, in which the exploiting capitalist performs merely 
a different kind of labor than the laborer. In this way the 
labor of exploitation and the exploited labor both appear as 
labor, as identical. The labor of exploitation is labor just 
as well as the labor which is exploited. It is the interest 
which represents the social form of capital, but it does so in 
a neutral and indifferent way. It is the profit of enterprise 
which represents the economic function of capital, but it does 
so in a way, which takes no cognizance of the definite capital- 
ist character of this function. 

In the present case, what passes in the consciousness of 
the capitalist is quite similar to what passes in the case of 
the fluctuations for which the capitalist makes allowance 
in the equalisation of the average profits, as indicated in part 
II of this volume. These compensating causes, which exert 
a determining influence on the distribution of the surplus- 
value, are distorted by the capitalist conception into originat- 
ing causes and subjective justifications of profit itself. 

The conception of profit of enterprise in the shape of wages 
of superintendence of labor, arising from the antagonism of 



Interest and Profit. 451 

profit of enterprise to interest, is further strengthened by 
the fact, that a portion of the profit may indeed be separated, 
and is separated in reality, as wages, or rather the reverse, 
that a portion of the wages appear under capitalist produc- 
tion as a separate portion of the profit. Already Adam Smith 
indicated, that this portion assumes its pure form, independ- 
ently of profit and wholly separated from it (as the sum of 
interest and profit of enterprise), and likewise separated 
from that portion of the profit, which remains in the shape 
of profit of enterprise after the deduction of the interest, in 
the salary of the superintendent in those lines of business, 
whose size, etc., permits a sufficient division of labor to justify 
a special salary for the labor of a superintendent. 

The labor of superintendence and management will nat- 
urally be required whenever the direct process of production 
assumes the form of a combined social process, and does not 
rest on the isolated labor of independent producers.'^* It 
has, however, a double nature. 

On one side, all labors, in which many individuals co- 
operate, necessarily require for the connection and unity of 
the process one commanding will, and this performs a func- 
tion, which does not refer to fragmentary operations, but to 
the combined labor of the workshop, in the same way as does 
that of a director of an orchestra. This is a kind of produc- 
tive labor, which must be performed in every mode of pro- 
duction requiring a combination of labors. 

On the other side, quite apart from any commercial de- 
partment, this labor of superintendence necessarily arises in 
all modes of production, which are based on the antagonism 
between the laborer as a direct producer and the owner of 
the means of production. To the extent that this antagonism 
becomes pronounced, the role played by superintendence in- 
creases in importance. Hence it reaches its maximum in the 
slave system. '^^ But it is indispensable also under the 

" " Superintendence is here (in the case of the farm owner) completely dis- 
pensed with." (J. E. Cairnes, The Slave Power, London, 1862, p. 48.) 

^° " If the nature of the work requires that the workmen (namely the slaves) 
should be dispersed over an extended area, the number of overseers, and, there- 
fore, the cost of the labor which requires this supervision, will be proportionately 
increased." (Cairnes, 1. c, p. 44.) 



452 Capitalist Production. 

capitalist mode of production since then tlie process of pro- 
duction is at the same time the process by which the capital- 
ist consumes the labor-power of the laborer. In like manner, 
the labor of superintendence and universal interference by 
the government in despotic states comprises both the per- 
formance of the common operations arising from the nature 
of all communities and the specific functions arising from 
the antagonism between the government and the mass of 
the people. 

In the works of ancient writers, who have the slave system 
under their eyes, both sides of the labor of superintendence 
are as inseparably combined in theory as they were in prac- 
tice. So it is also in the works of the modem economists, 
who regard the capitalist mode of production as the absolute 
mode of production. On the other hand, as I shall show 
immediately by an example, the apologists of the modern 
slave system utilise the labor of superintendence quite as 
much to justify slavery, as the other economists do to justify 
the wage system. 

The villicus in Cato's time : " At the head of the rural 
slave community (familia rusiica) stood the manager (villicus, 
derived from villa), who took receipts and made exj)enditures, 
bought and sold, received instructions from the master, gave 
orders and meted out punishment in his absence. 
The manager occupied naturally a freer position than the 
other slaves; the Magonian books advise to permit him to 
marry, raise children, and have his own funds, and Cato 
recommends that he be married with the female manager ; 
he alone probably had any prospects of being liberated by 
the master for good behavior. Tor the rest, all of them formed 
one common economy. . . . Every slave, including the 
manager himself, was supplied with his necessities at the 
expense of his master, in definite periods according to fixed 
rates, and he had to get along on that. The quantity varied 
according to labor, and for this reason the manager, whose 
work was lighter than that of the other slaves, received a 
smaller ration than the others." (Mommsen, Romische 
GescliicTite, second edition, 1856, I, p. 808-810.) 



Interest and Profit. 453 

Aristotle : " For the master proves himself such not in 
the buying, but in the employing of slaves." (The capitalist 
proves himself such, not by the ownership of capital, which 
gives him the power to buy labor-power, but in the employ- 
ment of laborers, nowadays of wage laborers in the process 
of production. ) " But there is nothing great about this 
knowledge. For whatever the slave must be able to perform, 
the master must be able to order. Whenever the masters 
are not compelled to drudge at superintendence, the manager 
assumes this honor^ while the masters attend to affairs of state 
or study philosophy." (Aristotle, Bepnhlic, Bekker edition, 
Book I, 7.) 

Aristotle says in plain words, that rulership on the political 
and economic field imposes upon the powers that be the func- 
tions of government, and that they must understand the art 
of consuming labor-power. And he adds, that this labor of 
superintendence is not a matter of great moment, and that 
for this reason the master, who is wealthy enough, leaves the 
" honor " of this drudgery to an overseer. 

The labor of management and superintendence arising out 
of the servitude of the direct producers has often been quoted 
in justification of this relation, not because it is a function 
due to the nature of all combined social labor, but because 
it is due to the antagonism between the owner of means of 
production and the owner of mere labor-power, regardless of 
whether this labor-power is bought by buying the laborer him- 
self, as it is under the slave system, or whether the laborer 
himself sells his labor-power, so that the process of produc- 
tion is the process by which capital consumes his labor-power. 
And exploitation, the appropriation of the unpaid labor of 
others, has quite as often been represented as the reward justly 
due to the owner of capital for his labor. But it was never 
better defended than it was by a champion of slavery in the 
United States, a certain lawyer O'Connor, at a meeting held 
in ISTew York, on December 19th, 1859, under the slogan of 
"Justice for the South." " ISTow, Gentlemen," he said amid 
great applause, " nature itself has assigned this condition of 
servitude to the negro. He has the strength and is fit to work ; 



454 Capitalist Production. 

but nature, which gave him this strength, denied him both 
the intelligence to rule and the will to work. (Applause.) 
Both are denied to him ! And the same nature, which denied 
him the will to work, gave him a master, who should enforce 
this will, and make a useful servant of him in a climate, to 
which he is well adapted, for his own benefit and that of the 
master who rules him. I assert that it is no injustice to 
leave the negro in the position, into which nature placed him ; 
to put a master over him; and he is not robbed of any right, 
if he is compelled to labor in return for this, and to supply a 
just compensation for his master in return for the labor and 
the talents devoted to ruling him and to making him useful 
to himself and to society." 

!N^ow, the wage-laborer, like the slave, must have a master, 
who shall put him to work and rule him. And assuming this 
relation of master and servant to exist, it is quite proper to 
compel the wage-laborer to produce his own wages and also 
the wages of superintendence, a compensation for the labor 
of ruling and superintending him, " a just compensation for 
his master in return for the labor and talents devoted to rul- 
ing him and to making him useful to himself and to society." 

The labor of superintendence and management arising out 
of the antagonistic character and rule of capital over labor, 
which all modes of production based on class antagonisms 
have in common with the capitalist mode, is directly and in- 
separably connected, also under the capitalist system, with 
those productive functions, which all combined social labor 
assigns to individuals as their special tasks. The wages of 
an epitropos, or regisseur, as he used to be called in feudal 
France, are entirely differentiated from the profit and as- 
sumes the form of wages for skilled labor, whenever the busi- 
ness is operated on a sufficiently large scale to warrant pay- 
ing such a manager, although our industrial capitalists do 
not " attend to affairs of state or study philosophy " for all 
that. 

That not the industrial capitalists, but the industrial man- 
agers are " the soul of our industrial system," has already 



Interest and Profit. 455 

been remarked by Mr. TJre.'^ So far as the commercial part 
of the business is concerned, we have said as much as was 
necessary in the preceding part of this volume. 

The capitalist mode of production itself has brought mat- 
ters to such a point, that the labor of superintendence, en- 
tirely separated from the ownership of capital, walks the 
streets. It is, therefore, no longer necessary for the capitalist 
performs the labor of superintendence himself. A director of 
an orchestra need not be the owner of the instruments of its 
members, nor is it a part of his function as a director, that 
he should have anything to do with the wages of the other 
musicians. The co-operative factories furnish the proof, that 
the capitalist has become just as superfluous as a functionary 
in production as he himself, in his highest developed form, 
finds the great real estate owner superfluous. To the extent 
that the labor of the capitalist is not the purely capitalistic 
one arising from the process of production and ceasing with 
capital itself, to the extent that it is not limited to the func- 
tion of exploiting the labor of others, to the extent that it 
rather arises from the social form of the labor-process as a 
combination and co-operation of many for the purpose of 
bringing about a common result, to that extent it is just as 
independent of capital as that form itself, as soon as it has 
burst its capitalistic shell. To say that this labor as a capital- 
istic one, as a function of the capitalist is necessary, amounts 
merely to saying that the vulgar economist cannot conceive 
of the forms developed in the womb of capitalist production 
separated and freed from their antagonistic capitalist char- 
acter. Compared to the money-capitalist the industrial cap- 
italist is a laborer, but a laboring capitalist, an exploiter of 
the labor of others. The wages which he claims and pockets 
for this labor amount exactly to the appropriated quantity 
of another's labor and depend directly upon the rate of ex- 
ploitation of this labor, so far as he takes the trouble to assume 
the necessary burdens of exploitation. They do not depend 

™A. Ure, Philosophy of Manufactures, French translation, 1836, I, p. 68, where 
this Pindarus of the manufacturers at the same time testifies that most of the 
manufacturers have not the slightest understanding of the mechanism, which they 
set in motion. 



456 Capitalist Production. 

upon the degree of liis exertions in carrying on this exploita- 
tion. He can easily shift this burden to the shoulders of a 
superintendent for moderate pay. After every crisis one may 
see plenty of ex-manufacturers in the English factory dis- 
tricts, who for low wages superintend their own former fac- 
tories as managers of the new owners, who are frequently 
their creditors. '^'^ 

The wages of superintendence, both for the commercial 
and the industrial manager, appear completely separated from 
the profits of enterprise in the co-operative factories of the 
laborers as well as in capitalistic stock companies. The sep- 
aration of the wages of superintendence from the profits of 
enterprise, which is at other times accidental, is here con- 
stant. In the co-operative factory the antagonistic character 
of the labor of superintendence disappears, since the manager 
is paid by the laborers instead of representing capital against 
them. Stock companies in general, developed with the credit 
system, have a tendency to separate this labor of management 
as a function more and more from the o^vnership of capital,- 
whether it be self-owned or borrowed. In the same way the 
development of bourgeois society separates the functions of 
judges and administrators from feudal property, whose pre- 
rogatives they were in feudal times. Since the mere owner 
of capital, the money-capitalist, has to face the investing 
capitalist, while money-capital itself assumes a social char- 
acter Avith the advance of credit, being concentrated in banks 
and loaned by them instead of by its original owners, and 
since, on the other hand, the mere manager, who has no title 
whatever to the capital, whether by borrowing or otherwise, 
performs all real functions pertaining to the investing capital- 
ist as such, only the functionary remains and the capitalist 
disappears from the process of production as a superfluous 
person. 

From the public accounts of the co-operative factories in 

" In one case known to me, after the crisis of 1868, a bankrupt manufacturer 
became the paid wage-laborer of his own former employes. This factory was 
operated after the bankruptcy of its owner by a laborers' co-operative, and its 
former owner was employed as manager. — F. E. 



Interest and Profit. 457 

England '^^ it is manifest, that the profit, after the deduc- 
tion of the wages of the superintendent, which form a part 
of the invested capital the same as the wages of the other 
laborers, was higher than the average profit, although they 
paid occasionally a much higher interest than the private 
factories. The cause of the greater profit was in all these 
cases a greater economy in the use of constant capital. What 
interests us particularly here is the fact that here the average 
profit (= interest + profit of enterprise) presents itself 
actually and palpably as a magnitude, which is wholly sep- 
arated from the wages of superintendence. Since the profit 
was here higher than the average profit, the profit of enter- 
prise was also higher than the current one. 

The same fact is revealed by some capitalist stock com- 
panies, such as joint stock banks. The London and West- 
minster Bank paid in 1863 annual dividends of 30%, the 
Union Bank of London and others 15%. Aside from the 
salary of the director, the interest paid for deposits is here 
deducted from the gross profit. The high profit is explained 
in this case by the small proportion of the paid-up capital 
to the deposits. For instance, in the case of the London and 
Westminster Bank, it was in 1863: Paid-up Capital 1,000,- 
000 pounds sterling; deposits 14,540,275 pounds sterling. 
In that of the Union Bank of London, 1863 : Paid-up capital 
600,000 pounds sterling; deposits 12,384,173 pounds sterling. 

The confounding of the profit of enterprise with the wages 
of superintendence or management was due originally to the 
antagonistic form assumed toward interest by the surplus 
over the interest. It was further promoted by the apologetic 
intention to represent profit, not as a surplus-value derived 
from unpaid labor, but as wages of the capitalist himself for 
labor performed by him. This was met on the part of the 
socialists by the demand, that profit should actually be re- 
duced to what it pretended to be theoretically, namely mere 
wages of superintendence. And this demand was all the more 
disagreeable to the apologists of the capitalists, as these wages 

''^ The accounts quoted here go no farther than 1864, since the above was written 
in 1865.— F. E. 



458 Capitalist Production. 

of superintendence, like all other wages, found on one hand 
their level and fixed market-price to the extent that a numer- 
ous class of industrial and commercial superintendents was 
formed,^^ while on the other hand these wages fell, like all 
wages for skilled labor, with the general development, which 
reduces the cost of production of specifically trained labor- 
power.^*^ With the development of co-operation on the part 
of the laborers, of stock enterprises on the part of the bour- 
geoisie, even the last pretext for the confusion in matters of 
profit of enterprise and wages of management was removed, 
and profit appeared also in practice what it was undeniably 
in theory, mere surplus-value, a value for which no equiva- 
lent was paid, realised unpaid labor. It was then seen that 
the investing capitalist really exploits labor, and that the fruit 
of his exploitation, when he worked with a borrowed capital, 
was divided into interest and profit of enterprise, a surplus 
of profit over interest. 

On the basis of capitalist production, a new swindle de- 
velops in stock enterprises with the wages of management. 
It consists in placing above the actual director a board of 
managers or directors, for whom superintendence and man- 
agement serve in reality only as a pretext for plundering 
stockholders and amassing wealth. Very interesting details 
concerning this are found in " The City or the Physiology 
of London Business; with Shetches on 'Change, and the Cof- 
fee Houses, London. 1845." Here is a sample : " What 
bankers and merchants gain by being on the boards of eight 
or nine different companies, may be seen from the following 
illustration: The private account of Mr. Timothy Abraham 
Curtis, handed in by the court of bankruptcy on his failure, 

" " Masters are laborers as well as their journeymen. In this character their 
interest is precisely the same as of their men. But they are also either capitalists, 
or the agents of capitalists, and in this respect their interest is decidedly opposed 
to the interest of the workmen." (P. 27.) " The wide spread of education 
among the journeymen mechanics of this country diminishes daily the value of 
the labor and skill of almost all masters and employers by increasing the num- 
ber of persons who possess their peculiar knowledge." (P. 30, Hodgskin, Labor 
defended against the Claims of Capital, etc., London, 1825.) 

^ " The general relaxation of conventional barriers, the increased facilities of 
education tend to bring down the wages of skilled labor instead of raising those 
of the unskilled." (J. St. Mill, Principles of Political Economy, 2nd ed., London, 
1849, I. p. 463.) 



Interest and Profit. 459 

showed an income of 8,900 pounds sterling per year under 
the head of directorships. Since Mr. Curtis had been a direc- 
tor of the Bank of England and of the East Indian Company, 
every stock company was happy to secure him as a director." 
(P. 82.) — The remuneration of the directors of such com- 
panies for each weekly meeting is at least one guinea. The 
proceedings of the court of bankruptcy show, that these wages 
of superintendence are as a rule inversely proportioned to 
the actual superintendence performed by these nominal direc- 
tors. 



CHAPTER XXIV. 



EXTEEJSTALISATION OF THE BELATIOJSrS OF CAPITAL IN THE FOEM 
OF INTEHEST-BEAKING CAPITAL. 

In the interest-bearing capital, the relations of capital as- 
sume their most externalised and most fetish-like form. We 
have here M — M' money creating more money, self-expend- 
ing value, without the process intermediate between these two' 
extremes. In the merchants' capital, M — C — M', there is 
at least the general form of the capitalistic process, although 
it clings to the sphere of circulation, so that profit appears 
merely as profit from selling; but it is at least seen to be 
the product of a social relation, not the product of a mere 
thing. The form of merchants' capital presents at least the 
aspect of a process, of a unity of antagonistic phases,^ of a 
movement divided into two transactions, namely into the pur- 
chase and sale of commodities. This is obliterated in 
M — M', the form of interest-bearing capital. For instance, 
if 1,000 pounds sterling are loaned by some capitalist, when 
the rate of interest is 5%, then the value of 1,000 pounds 
sterling as a capital for one year is C -\- CV, C standing for 
the capital and i' for the rate of interest. In the present 
case this would mean 5%, or yf^oi'Tcr' ^^^ 1,000 -f- 1,000 
times -^ = 1,050 pounds sterling. The value of 1,000 
pounds sterling as capital is 1,050 pounds sterling, that is, 
capital is not a simple magnitude. It is a relation of mag- 



460 Capitalist Production. 

nitudes, a relation of principal sum, as a given value, to it- 
self as a self-expanding value, as a principal sum having 
produced a surplus-value. And we have seen that capital as- 
sumes this form of a directly self-expanding value for all in- 
vesting capitalists, whether they work with their own or with 
a borrowed capital. 

M — M'. We have here the original starting point of 
capital, we have money in the formula M — C — M' reduced 
to its two extremes M — M', in which M' stands for M -f- in- 
crement of M, money creating more money. It is the primal 
and general formula of capital concentrated into a meaning- 
less summary. It is capital perfected, a unity of the process 
of production and process of circulation, yielding a certain 
surplus-value in a certain period of time. In the form of 
interest-bearing capital this appears spontaneously without 
any intervention of the processes of production and circula- 
tion. Capital appears as a mysterious and self-creating source 
of interest, a thing increasing itself. The Thing (money, 
commodity, value) is now capital even as a mere thing, and 
capital appears as a mere thing. The result of the entire proc- 
ess of reproduction appears as a faculty inherent in the thing 
itself. It depends on the owner of the money, which rep- 
resents the universal exchange-form of commodities, whether 
he wants to spend it as money or loan it as capital. In the 
interest-bearing capital, therefore, this automatic fetish is 
elaborated in its pure state, it is self -expanding value, money 
generating money, and in this form it does not carry any 
more scars of its origin. The social relation is perfected into 
the relation of a thing, of money, to itself. Instead of the 
actual transformation of money into capital, only an empty 
form meets us here. As in the case of labor-power, so here 
in the case of interest-bearing capital the use-value of money 
becomes that of creating value, and at that a greater value 
than it contains itself. Money as such is potentially self- 
expanding value and is loaned as such, and loaning is the 
form of sale for this peculiar commodity. It becomes a 
faculty of money to generate value and yield interest, just as 
it is a faculty of a pear tree to bear pears. And the money 



Relations of Capital. 461 

lender sells his money as such an interest-bearing thing. But 
that is not all. The actually invested capital, as we have 
seen, presents itself in such a light, that it seems to yield the 
interest, not as a capital performing its function, but as a 
capital in itself, as money-capital. 

And still something else becomes perverted. While inter- 
est is only a portion of the profit, that is, of surplus-value, 
which the investing capitalist squeezes out of the laborer, it 
looks now on the contrary as though the interest were the 
typical fruit of capital, the primal thing, and profit, in the 
shape of profit of enterprise, a mere accessory and by-product 
of the process of reproduction. Thus the fetish form of 
capital and the conception of a fetish capital are perfect. In 
M — M' we have the void form of capital, the perversion and 
individualisation of the relations of production in their high- 
est degree. The interest-bearing form is the simple form of 
capital, in which it is assumed to be antecedent to its own 
process of reproduction. It is the faculty of money, or of 
a commodity, to expand its own value independently of re- 
production, a mystification of capital in its most flagrant 
form. 

For vulgar political economy, which desires to represent 
capital as a spontaneous source of value and its creation, this 
mystic form is, of course, a great boon. It is a form, in 
which the source of profit is no longer discernible, and in 
which the result of the capitalist process of production re- 
ceives an independent existence apart from this process. 

It is not until capital becomes money-capital, that it can 
assume the form of a commodity, whose self-expanding faculty 
has a definite price, which is quoted in the current rate of 
interest. 

As an interest-bearing capital, in its direct form of interest- 
bearing money-capital (the other forms of interest-bearing 
capital, which do not concern us here, are derived from this 
one and require its existence), capital assumes its pure fetish 
form, M — M' as a subject and a saleable thing. In the first 
place, its continual existence as money gives to it a form, in 
which all its functions are obliterated and its real elements 



462 Capitalist Production. 

invisible. For money is precisely tliat form, in which the 
distinctions of commodities as use-values are concealed, and 
with them the distinctions of the industrial capital consisting 
of these commodities and their conditions of production. It 
is that form, in which value, in the present case capital, 
exists as an independent exchange-value. In the process of 
reproduction of capital, the money-form is but a transient 
one, a mere passing link. But on the money-market, capital 
always exists in this form. In the second place, the surplus- 
value produced by it, which has here again the form of money, 
appears as inherent in it. Like the growing of trees, so the 
breeding of money appears as an innate quality of capital 
in the form of money-capital. 

In the interest-bearing capital, the movement of capital 
is contracted. The intervening process is omitted. In this 
way a capital of 1,000 appears with the fixed faculty of being 
of itself 1,100 and converting itself after a certain period 
into 1,100, just as wine in a cellar improves its use-value 
after a certain period. Capital is then a thing, which is of 
itself capital. The money is then pregnant. As soon as it 
has been loaned, or invested in the process of reproduction 
(when it yields interest to its owner separate from profit of 
enterprise for his function as investing capitalist), the inter- 
est accumulates, whether it be awake or asleep, at home or 
abroad, day or night. In the interest-bearing money capital, 
then, the fervent wish of the hoarding miser is fulfilled (and 
all capital is money-capital, so far as the expression of its 
value is concerned, or is considered as the expression of 
money-capital). 

It is this inherent dwelling of interest in money-capital as 
a thing (and this is the aspect here assumed by the produc- 
tion of surplus-value by capital), which engages Luther's at- 
tention so much in his naive thundering against usury. After 
demonstrating, that interest may be demanded, when failure 
to pay back a loan to a lender, who has to meet a certain pay- 
ment himself, caused a loss to him, or when he might have 
made a profit on a bargain, for instance in buying a garden, 
but lost it for the reason that the borrower failed to return 



,Relations of Capital. 463 

the loan on time, Luther continues : " ISTow that I have 
loaned yon 100 guilders, jou make good my double loss due 
to the fact that I could not pay on one side and not buy on 
the other, so that I had to lose on both sides, and this is called 
double interest, for loss sustained and gain stopped. 
Having heard that John lost on his loan of 100 guilders and 
demands just damages, they rush in and charge double inter- 
est on every 100 guilders, which interest was only charged 
for the loss due to nonpayment and to inability to make a 
profit on a bargain, just as though every 100 guilders could 
naturally grow double interest, so that whenever they have 
100 guilders, they loan them out and charge for two losses, 
which they have not at all sustained. . . . Therefore you 
are a usurer, who takes damages out of his neighbor's money 
for an imaginary loss that you did not sustain at all, and 
which you can neither prove nor calculate. This sort of loss 
is called by the jurists not true, hut fantastical interest. It 
is a loss of which each dreams for himself. ... It will 
not do to say tliat you might incur a loss, because I might not 
have been able to pay or buy. That would be making some- 
thing out of a thing that is not so, a thing that is uncertain 
into a thing that is absolutely sure. Such usury would eat 
up the world in a few years. ... If the lender acci- 
dentally incurs a loss, without his fault, he may demand dam- 
ages for it, but it is different in trade and just the reverse. 
There they scheme to profit at the expense of their needy 
neighbors, how to amass wealth and get rich, to be lazy and 
idle and live in luxury on the labor of others, without any 
care, danger and loss. To sit behind the stove and let my 
100 guilders gather wealth for me in the country and yet 
keep them in my pocket, because they are only loaned, with- 
out any danger or risk, my friend, who would not like to do 
that ! " (Martin Luther, An die Pfarherrn wider den 
Wucher zu predigen, etc., Wittenberg, 1540.) 

The idea of capital as a self-reproducing and thereby self- 
expanding value, lasting and growing eternally by virtue of 
its inherent power — by virtue of the hidden faculties of the 
scholastics — has led to the fabulous fancies of Dr. Price, 



464 Capitalist Production. 

^Yllicll far outdo the fantasies of the alchemists; fancies, in 
which Pitt seriously believed and which he used as pillars of 
his financial administration in his laws concerning the sink- 
ing fund. 

" Money bearing compound interest grows at first slowly ; 
but since the rate of increase is constantly accelerated, it be- 
comes so fast after a wdiile as to defy all imagination. A 
penny, loaned at the birth of our Savior at compound inter- 
est at 5%, would already have grown into a larger amount 
than would be contained in 150 million globes, all of solid 
gold. But loaned at simple interest, it would have grown 
only to 7 sh. 4^ d. in the same time. Hitherto our govern- 
ment has preferred to imjDrove its finances in the latter in- 
stead of in the former way." ^^ 

He flies still higher in his " Observations on Reversionary 
Payments, etc., London, 1782." There we read: " 1 sh. in- 
vested at the birth of our Savior " (presumably in the Tem- 
ple o'f Jerusalem) "at 6% compound interest would have 
grown to a larger amount than the entire solar system could 
contain, if it were transformed into a globe of the diameter 
of the orbit of Saturn." " A state need never to be in diffi- 
culties on this account ; for with the smallest savings it can 
pay the largest debt in as short a time as its interests may 

^^ Richard Price, An Appeal to the Public on the subject of the Na- 
tional Debt, 2nd ed., London, 1772. He cracks the naive joke: " A man 
must borrow money at simple interest, in order to increase it at compound in- 
terest." (R. Hamilton, An Inquiry into the Rise and Progress of the National 
Debt of Great Britain, 2nd ed., Edinburgh, 1814.) According to this, borrowing 
would be the safest means for private people to gather wealth. But if I borrow 
100 pounds sterling at 5% annual interest, I have to pay 5 pounds at the end of 
the year, and even if the loan lasts for 100 million years, I have meanwhile only 
100 pounds to loan every year and 5 pounds to pay every year. I can never manage 
by this process to loan 105 pounds sterling when borrowing 100 pounds sterling. 
And how am I going to pay the 5 pounds? By new loans, or, if it is the state, by 
new taxes. Now, if the industrial capitalist borrows money, and his profit amounts 
to 15%, he may pay 5% interest, spend 5% for his private expenses (although his 
appetite grows v.'ith his income), and capitalise 5%. In this case, 15% are the 
premise on which 5% interest may be paid continually. If this process con- 
tinues, the rate of profit, for the reasons indicated in former chapters, will fall 
from 15% to, say, 10%. But Price forgets wholly that the interest of 5% pre- 
supposes a rate of profit of 15%, and assumes it to continue with the accumulation 
of capital. He does not take note of the process of accumulation at all, but thinks 
only of the loaning of money and its return with compound interest. How that is 
accomplished is immaterial to him, since for him it is the innate faculty of inter- 
est-bearing capital. 



Relations of Capital. 465 

demand." (P. 136.) What a pretty theoretical introduction 
to the national debt of England ! 

Price was simply dazzled by the enormousness of the fig- 
ures arising from geometrical progression. Since he regarded 
capital, without taking note of the conditions of reproduction 
and labor, as a self-regulating automaton, as a mere number 
increasing itself (just as Malthus did with men in their 
geometrical progression), he could imagine that he had found 
the law of its growth in the formula s = c(l -f- i)^, in which 
s stands for the sum of capital plus compound interest, c for 
the advanced capital, i for the rate of interest expressed in 
aliquot parts of 100, and n for the number of years in which 
this process takes place. 

Pitt takes this mystification of Price quite seriously. In 
1788 the House of Commons had resolved to raise one million 
pounds sterling for the public benefit. According to Price, 
in whom Pitt believed, there was, of course, nothing better 
thaii to tax the people, in order to " accumulate " this sum 
after raising it, and thus to spirit the national debt away by 
the mystery of compound interest. " The above resolution 
of the House of Commons was soon followed up by Pitt with 
a law, which ordered the accumulation of 250,000 pounds 
sterling, until, with the expired annuities, the fund should 
have grown to 4,000,000 pounds sterling annually." (Act 
26, George III, chap. 22.) In his speech of 1792, in which 
Pitt proposed that the amount devoted to the sinking fund 
be increased, he mentioned among the causes of the commer- 
cial supremacy of England machines, credit, etc., as " the 
most wide-spread and enduring cause of accumulation." This 
principle, he said, was completely developed in the work of 
Smith, that genius, etc. . . . And this accumulation, he 
continued, was accomplished by laying aside at least a portion 
of the annual profit for the purpose of increasing the prin- 
cipal, which was to be employed in the same manner next 
year, and which thus yielded a continual profit. By the help 
of Dr. Price^ Pitt thus converted Smith's theory of accu- 
mulation in an increase of popular wealth by means of the 
accumulation of debts, and in this way he gets into the pleas- 

2D 



466 Capitalist Production. 

ant progress of infinite loans, made for the purpose of paying 
loans. 

Already Josiah Child, the father of modem banking, tells 
ns that 100 pounds sterling at 10% will produce in YO years 
by compound interest 102,400 pounds sterling. Traite sur 
le commerce, etc., par J. Child, traduit, etc., Amsterdam et 
Berlin, 1754, p. 115. Written in 1669.) 

How thoughtlessly the conception of Dr. Price is applied 
by modern economists, is shown by the following passage of 
the "Economist": "Capital, with compound interest on 
every portion of capital saved, is so all-engrossing that* all the 
wealth in the world from which income is derived, has long 
ago become interest of capital .... all rent is now the 
paj-ment of interest on capital previously invested in the 
land." (Economist, July 19th, 1859.) In its capacity of 
interest-bearing capital capital claims the ownership of all 
wealth which can ever be produced, and everything it has 
received so far is but an instalment for its all-engrossing ap- 
petite. By its innate laws, all surplus-labor belongs to it, 
which the human race can ever perform. Moloch. 

In conclusion we present the following hodge-podge of the 
romantic Mliller : " Dr. Price's immense increase of com- 
pound interest, or of the self-accelerating forces of man, pre- 
suppose an undivided or unbroken order for several centuries, 
if they are to produce such enormous effects. As soon as 
capital is divided, cut up into several independently growing 
slips, the total process of accumulating forces begins anew. 
Nature has distributed the progi'ession of power over a course 
of about 20 to 25 years, which fall on an average to the share 
of every laborer ( !). After the lapse of this time the laborer 
leaves his track and must transfer the capital accumulated 
by the compound interest of labor to a new laborer, having 
to distribute it as a rule among several laborers or children. 
These must first learn to vitalise and employ their share of 
capital, before they can draw any actual compound interest 
out of it. Furthermore, an enormous quantity of capital 
gained by bourgeois society is accumulated for many years, 
even in the most restless communities, and is not employed 



Relations of Capital. 467 

for any immediate expansion of labor, but rather entrusted to 
another individual, a laborer, a bank, a state, under the term 
of a loan, whenever a considerable amount has been gathered 
together. And in that case the one who receives it sets the 
capital into actual motion and draws compound interest out 
of it, so that he can easily ag-ree to pay simple interest to the 
lender. Finally the laws of consumption, greed, waste, op- 
pose those immense progressions, in which the forces of man 
and their products might increase, if the law of production 
or thrift were alone eifective." (A Miiller, 1. c, II, p. 
147-149.) 

It is impossible to concoct a more hair-raising nonsense in 
a few lines. Leaving aside the droll confusion of laborer and 
capitalist, of value of labor-power and interest of capital, etc., 
the decrease of compound interest is supposed to be explained 
by lending capital at compound interest. This procedure of 
our Miiller is characteristic of romanticism in all fields. It 
is made up of current prejudices, skimmed from the most 
superficial semblance of things. This false and trivial sub- 
stance is then supposed to be " uplifted " and rendered poetical 
by a mystifying mode of expression. 

The process of accumulation of capital may be conceived 
as an accumulation of compound interest in the sense that 
that portion of the profit (surplus-value), which is recon- 
verted into capital, and serves to absorb more surplus-value, 
may be called interest. But 

1) Aside from all accidental irregularities, a large part of 
the available capital is continually depreciated in the course 
of the process of reproduction, because the value of the com- 
modities is not determined by the labor-time originally spent 
in their production, but by the labor-time spent in their re- 
production, and this decreases continually in consequence of 
the development of the productivity of social labor. On a 
higher stage of development of the social productivity all 
available capital appears therefore as the result of a relatively 
short time of reproduction, instead of as the result of a long 
process of saving capital,^^ 

** See Mill and Carey, and Roscher's mistaken commentary on them. 



468 Capitalist Production. 

2) As we have proven in Part III of this volume, the rate 
of profit decreases in proportion as the accumulation of capital 
and the productivity of social labor corresponding to it in- 
crease, since these two express themselves precisely in a rela- 
tive and progressive decrease of the variable portion of capital 
as compared to the constant. In order to produce the same 
rate of profit, when the constant capital set in motion by one 
laborer increases tenfold, the surplus labor time would have 
to increase tenfold, and soon the total labor time, and finally 
the full 24 hours of a day, would not suffice, even if wholly 
appropriated by capital. The idea that the rate of profit does 
not decrease is, on the other hand, the basis of the progression 
of Price, as it is in general the basis of " all-engrossing capital 
with compound interest." ^^ 

By the identity of surplus-value with surplus-labor a qual- 
itative limit is imposed upon the accumulation of capital. 
This is formed by the total working day, the prevailing de- 
velopment of the productive forces and of the population, 
which limit the number of the simultaneously exploitable 
working days. But if surplus value is conceived of in the 
meaningless form of interest, then the limit is merely quan- 
titative and defies all fantasy. 

!N"ow, in the interest-bearing capital the idea of a capital- 
ist fetish is perfected, the idea, which attributes to the 
accumulated product of labor, and at that in the fixed form 
of money, the power of creating surplus-value by its inherent 
secret qualities, in a purely automatic manner, and in 
geometrical progression, so that the accumulated product of 
labor, as the '' Economist " thinks, has long discounted all 
the wealth of the world for all times as belonging to it and 
coming to it by right. The product of past labor, the past 
labor itself, is here pregnant in itself with a portion of pres- 
ent or future living surplus-labor. We know, on the contrary, 
that as a matter of fact the preservation, and to that extent 

^ " It is clear, that no labor, no productive power, no ingenuity, and no art, can 
answer the overwhelming demands of compound interest. But all saving is made 
from the revenue of the capitalist, so that actually these demands are constantly 
made and as constantly the productive power of labor refuses to satisfy them. A 
sort of balance is, therefore, constantly struck." (.Labour defended against the 
Claims of Capital, p. 23. By Hodgskin.) 



Relations of Capital. 469 

the reproduction, of the value of the products of past labor 
is only the result of their contact with living labor ; "and sec- 
ondly, that the control exerted by the products of past labor 
over living surplus-labor lasts only as long as the relations of 
capital, which rest on the definite social relation, in which 
past labor dominates independently over living labor. 



CHAPTER XXV. 

CREDIT AND FICTITIOUS CAPITAL. 

An exhaustive analysis of the credit system and of the in- 
struments created by it for its own use (credit money, etc.) 
is beyond the scope of our plan. We merely wish to dwell 
here upon a few particular points, which are necessary for 
a characterisation of the capitalist mode of production in gen- 
eral. To this end we shall deal only with commercial and 
bank credit. The connection between the development of 
this form of credit and that of public credit is not considered 
here. 

I have shown previously (in volume I, chapter III, 3b.), 
in what manner the function of money as a medium of pay- 
ment, and consequently a relation of creditors and debtors, 
is formed among the producers of commodities and the traders, 
as the outcome of the simple circulation of commodities. 
With the development of commerce and of the capitalist mode 
of production, which has an eye only to the circulation, this 
natural basis of the credit system is extended, generalised, 
elaborated. Money serves here on the whole merely as a 
means of payment, that is to say, commodities are not sold 
for money, but for a written promise to pay for them at a 
certain date. We may comprise all these promises to pay 
for brevity's sake under the general category of bills of ex- 
change. Such bills of exchange in their turn circulate as 
means of payment until the day on which they fall due; and 
they form commercial money in the strict meaning of the 
term. To the extent that they ultimately balance one another 
by the compensation of credits and debts, they serve abso- 



470 Capitalist Production. 

lutely as money, since no transformation into actual money 
takes place. Just as these mutual advances of the producers 
and merchants to one another form the real foundation of 
credit, so their instrument of circulation, the bill of exchange, 
forms the basis of credit money proper, of bank notes, etc. 
These do not rest upon the circulation of money, whether 
it be metallic money or government paper money, but upon 
the circulation of bills of exchange. 

W. Leatham, a banker of Yorkshire, writes in his '' Letters 
on the Currency," 2nd edition, London, 1840 : " I find, that 
the total amount in bills of exchange for the entire year 1839 
Avas 528,493,842 pounds sterling " (he assumed that the 
foreign bills of exchange composed about one-fifth of the 
whole) " and the amount of bills of exchange simultaneously 
current in the same year to 132,123,460 pounds sterling " 
(p. 56). " The bills of exchange make up a greater part of 
the amount in circulation than all the rest together" (p. 3). 
" This enormous superstructure of bills of exchange rests 
( !) upon a basis formed by the amount of bank notes and 
gold; and if in the course of events this basis is too much 
contracted, its solidity, and even its existence, become en- 
dangered " (p. 8). "Estimating the entire circulation" (he 
means of the bank notes) " and the amount of the obligations 
of all banks for which immediate payment may be demanded, 
I find a sum of 153 millions, whose conversion into gold 
might be demanded according to law, and to offset it only 14 
millions in gold to satisfy this demand" (p. 11). The bills 
of exchange cannot be placed under control, unless the super- 
fl.uity of money and the low rate of interest, or discount, can 
be prevented, which create a part of them and encourage this 
dangerous expansion. It is impossible to decide, how much 
of them is due to actual business, for instance, to real pur- 
chases and sales, and what part of them is fictitious and con- 
sists only of prolonged bills, that is, when a bill of exchange 
is drawn for the purpose of taking up a current one before 
it becomes due, and thus of creating fictitious capital by the 
manufacture of mere means of circulation. In times of 
superfluous and cheap money I know this is done to an enor- 



Credit and Fictitious Capital. ^yi 

mous degree" (p. 43, 44). J. W. Bosanquet, Metallic, 
Paper, and Credit Currency, London, 1842: The average 
amount of the payments settled on every business day in the 
* Clearing House (where the London bankers mutually ex- 
change the due bills and filed checks) exceeds 3 millions of 
pounds sterling, and the daily supply of money required for 
this purpose is little more than 200,000 pounds sterling (p. 
86). [In the year 1889, the total turn-over of the Clearing 
House amounted to 7,618 and f millions of pounds sterling, 
which, in 300 business days, averages 25 and -J millions of 
pounds sterling daily. — T.E.] "Bills of exchange are un- 
doubtedly currency, independent of money, inasmuch as they 
transfer property from hand to hand by endorsement " (^p. 
92). " On an average it may be assumed that every cir- 
culating bill of exchange bears two endorsements, and that 
on an average every bill thus performs two payments, before 
it becomes due. Accordingly it seems that alone by endorse- 
ment the bills of exchange promoted a transfer of property to 
the amount of twice 528 millions, or 1,056 millions of pounds 
sterling, more than 3 millions daily, in the course of the year 
1839. It is, therefore, certain the bills of exchange and de- 
posits together, by transferring property from hand to hand 
and without the assistance of money, perform the functions 
of money to a daily amount of at least 18 millions of pounds 
sterling" (p. 93). 

Tooke says the following about credit in general : " Credit, 
in its simplest expression, is the well or ill-founded con- 
fidence, which induces one man to entrust to another a certain 
amount of capital, in money or in commodities estimated at 
a certain value, which amount is always payable after the 
lapse of a definite time. Where the capital is loaned in 
money, that is, in bank notes, or in a cash credit, or in a 
check upon some correspondent, an addition of so and so 
many per cent, upon the returnable amount is made for the 
use of the capital. With commodities, whose money value 
has been agreed upon by the parties concerned, and whose 
transfer constitutes a sale, the stipulated sum, which is to 
be paid, includes a compensation for the use of the capital 



472 Capitalist Production. 

and for the risk assumed until the time of payment. Writ- 
ten agreements to pay on definite days are generally given 
for such credits. And these transferable obligations, or prom- 
ises, form the means by which the lenders, when they find an 
opportunity to use their capital, either in the shape of money 
or commodities, are generally enabled to borrow or buy more 
cheaply, their own credit being strengthened by that of the 
second name upon the bill of exchange." Inquiry into the 
Currency PriJiciple, (p. 87.) 

Ch. Coquelin, Du Credit et des Banques dans V Industrie. 
Eevue des deux Mondes, 181-2, tome 31 : " In every country 
the majority of the credit transactions takes place in the circle 
of the industrial relations themselves . . . the pro- 
ducer of the raw material advances it to the capitalist, who 
works it up, and receives from him a promise to pay on a 
certain day. The manufacturer, having completed his share 
of the work, in his turn advances his product on similar con- 
■ ditions to another manufacturer, who has to manipulate it 
farther, and in this way credit extends more and more, from 
one to the other, down to the consumer. The wholesale dealer 
gives to the retail dealer commodities on credit, while he re- 
ceives himself credit from a manufacturer or commission 
agent. All borrow with one hand and lend with the other, 
sometimes money, but more frequently products. In this 
manner an incessant exchange of credits, combining and 
crossing in all directions, takes place in the industrial rela- 
tions. The development of credit consists precisely in the 
multiplication and growth of these mutual credits, and here 
is the real seat of its power." 

The other side of the credit system is connected with the 
development of the money trade, which, of course, keeps 
step under capitalist production with the development of the 
trade in commodities. We have seen in the preceding part 
(chapter XIX), how the care of reserve funds of business 
men, the technical operations of receiving and issuing money, 
of international payments, and thus of the bullion trade, are 
concentrated in the hands of the money traders. Borrow- 
ing and lending money becomes their particular business. 



Credit and Fictitious Capital. 473 

They step as middlemen between the actual lender and the 
borrower of capital. Generally speaking, the banking busi- 
ness on this side consists of concentrating the loanable money- 
capital in the banker's hands in large masses, so that in place 
of the individual money lender the bankers face the industrial 
capitalists and commercial capitalists in the capacity of rep- 
resentatives of all money lenders. They become the general 
managers of the money-capital. On the other hand, they con- 
centrate tlie borrowers against all lenders, and borrow for 
the entire world of commerce. A bank represents on one 
hand the centralisation of money-capital, of the lenders, and 
on the other the centralisation of the borrowers. Its profit 
is generally made by borrowing at a lower rate of interest 
than it loans. 

The loanable capital, of which the banks dispose, flows to 
them in various ways. In the first place, since they are the 
cashiers of the industrial capitalists, there is concentrated 
into their hands the money-capital, which every producer and 
merchant must have as a reserve fund, or which he receives 
in payment. These funds are thus converted into loanable 
capital. In this way the reserve fund of the commercial 
world, being concentrated into a common treasury, is reduced 
to its necessary minimum, and a portion of the money-capital, 
which would otherwise slumber as a reserve fund, is loaned 
and serves as interest-bearing capital. In the second place, 
the loanable capital of the banks is formed by the deposits of 
the money-capitalists, who entrust tliem with the business of 
loaning it. Furthermore, with the development of the bank 
system, and particularly as soon as they pay interest on de- 
posits, the money savings and the temporarily unemployed 
money of all classes are deposited with them. Small amounts, 
each by itself incapable of acting in the capacity of money- 
capital, are combined into large masses and thus form a money 
power. This aggregation of small amounts must be distin- 
guished as a specific effect of the bank system from its inter- 
mediate position between the money-capitalists proper and 
the borrowers. Finally, the revenues, which are but grad- 
ually consumed, are also deposited with the banks. 



474 Capitalist Production. 

The loan is made (we refer here only to the commercial 
credit in the strict meaning of the term) by discounting bills 
of exchange, that is, by converting them into money before 
they come due, and by advances in various forms : direct ad- 
vances on personal credit, Lombard loans on interest-bearing 
papers, government papers, stocks of all kinds, furthermore 
advances on bills of lading, dock warrants, and other certified 
titles of ownership in commodities, and by overdrawing on 
their deposits, etc. 

The credit given by a banker may assume various forms, 
for instance, that of exchanges on other banks, checks on 
them, opening of credit in the same way, finally, in the case 
of banks entitled to issue notes, the bank notes of the bank 
itself. A bank note is nothing but a draft upon the banker, 
payable at any time to the bearer, and substituted by the 
banker for private drafts. This last form of credit appears 
particularly important and striking to the layman, first, be- 
cause this form of credit money steps from the mere com- 
mercial circulation into the general circulation and serves as 
money there, and in the second place, because in most coun- 
tries the principal banks issuing notes represent a queer mix- 
ture of national and private banks and thus have actually the 
national credit to back them up and give to their notes the 
character of a more or less legal tender, for in this case it is 
apparent, that the thing which the banker handles is credit 
itself, since a bank note stands only for a circulating token 
of credit. But the banker also deals in all other forms of, 
credit, even when he advances cash money deposited with 
him. In fact, a bank note simply represents the coin of 
wholesale trade, and it is always the deposit, which carries the 
most weight with banks. The best proof of this is furnished 
by the Scotch banks. 

The special credit institutions, and the particular forms of 
banks, do not require any further consideration for our pur- 
poses. 

The banks have a twofold business. . . . 1) To col- 
lect capital from those, who have no immediate use for it, and 



Credit and Fictitious Capital. 475 

to distribute it and transfer it to others^ who can use it. 2) 
To receive deposits from the incomes of their customers and to 
pay them whatever amount they may require of this deposit 
for the expenses of consumption. The former is circulation of 
capital, the latter circulation of currency. — The one is a 
concentration of capital on one side, and its distribution on 
the other ; the other is a management of the circulation for the 
local needs of the vicinity. — Tooke, Inquiry into the Cur- 
rency Principle, p. 36, 37. — ^^Ve shall revert to this passage 
later, in chapter XXVIII. 

Eeports of Committees. Vol. VIII., Commercial Distress. 
Vol. II., Part I., 1847-48, Minutes of Evidence. (Sub- 
sequently quoted as Commercial Distress, 1847-48.) In the 
forties, when discounting bills of exchange in London, bills 
of exchange of one bank were often drawn on another instead 
of bank notes. (Testimony of J. Pease, provincial banker, 
'No. 4636 and 4656.) According to the same report, the 
bankers were in the habit of giving such bills of exchange in 
payment to their customers, as soon as money grew tight. If 
the party receiving them demanded bank notes, he had to dis- 
count this bill of exchange once more. This amounted to a 
privilege of making money for the banks. Messieurs Jones, 
Lloyd and Co., made payments in this way " since time im- 
memorial," as soon as money was scarce and the rate of interest 
above 5%. The customer was glad to get such banker's bills, 
because bills of Jones, Lloyd and Co. could be easier dis- 
counted than his owm ; these bills often passed through twenty 
to thirty hands. (Ibidem, No. 901 to 904, 905.) 

All these forms serve to make a claim to payments transfer- 
able. — There is scarcely one form, which credit may assume, 
in which it has not at times performed the functions of money ; 
Avhether this form is that of a bank note, or of a bill, or of a 
check, the process is essentially the same and the result is es- 
sentially the same. Fullarton, On the Regulation of Cur- 
rencies, 2d edition, London, 1845, p. 38. — Bank notes are the 
small currency of credit, p. 51. — 

The following is from J. W. Gilbart. The History and 
Principles of Banking, London, 1834: The capital of a 
bank consists of two parts, the invested capital and the bank- 
ing capital, which is borrowed (p. 11 et seq.). The banking 
capital, or borrowed capital, is maintained in three ways: 1) 



476 Capitalist Production, 

through the acceptance of deposits; 2) through the issuing of 
the bank's own notes; 3) through the drawing of bills. If 
some one is willing to loan me 100 p.st. for nothing, and I 
loan these 100 p.st. to some one else at 4%, I shall make 4 
p.st. by this transaction in the course of one year. Likewise 
if some one is willing to accept my promise to pay and to re- 
turn it to me at the end of the year and to pay me 4% for it, 
just as though I had given him 100 p.st. by this transaction, 
I make 4 p.st. by it; and again, if a man in a country town 
brings me 100 p.st. on the condition that I shall pay this 
amount to some third person in London after the lapse of 21 
days, all the interest I may draw in the meantime on this 
money will be my profit. This is an objective summary of the 
operations of a bank and of the way in which a banking 
capital is created by deposits, bank notes and bills of ex- 
change (p. 117). The profits of a banker are generally pro- 
portionate to the amount of his borrowed or banking capital. 
In order to determine the actual profit of a bank, the interest 
on the first investment of capital must be deducted from the 
gross profits. The remainder is the banking profit (p. 118). 
The advances of a hanJcer to his customers are made with the 
money of other people (p. lJi-6). Precisely those bankers, 
who do not issue any bank notes, create a banking capital by 
discounting bills of exchange. They increase their deposits 
by their discounting operations. The London banks discount 
only for those firms, that keep a deposit in account with them 
(p. 119). A firm discounting bills of exchange in its bank 
and having paid interest upon the whole amount of these bills 
must leave at least a portion of this amount in the hands of 
the bank without receiving any interest on it. In this way 
the banker receives a higher rate of interest than the current 
one on the advanced money and creates for himself a banking 
capital by means of the surplus remaining in his hands, (p. 
120.) — Economising of reserve funds, deposits, checks : The 
deposit banks economise by a transfer of credit accounts the 
use of the circulating medium and transact business of a large 
volume with a small amount of actual money. The money 
thus released is employed by the banker in making advances 
to his customers by means of discounts, etc. Hence tlie trans- 
fer of credit enhances the effectiveness of the deposit system 
(p. 123). It is immaterial, whether the two customers, that 



Credit and Fictitious Capital. 477 

deal with one another, keep their accounts with the same or 
with different bankers. For the bankers exchange their checks 
among themselves in the Clearing House. By means of trans- 
fers the deposit system might be extended to such a degree that 
it would do away entirely with the use of metal money. If 
every one were to keep a deposit account in the bank and to 
make payments by means of checks then such checks would be 
the only circulating medium. In this case the assumption 
would have to be that the bankers hold the money in their 
hands, otherwise the checks would have no value (p. 124). 
The centralisation of the local transactions in the hands of the 
banks is promoted, 1) by branch banks. The provincial banks 
have branch establishments in the smaller towns of their dis- 
trict the London banks in the different quarters of the city. 
2) By agencies. Every provincial bank has its agent in 
London, in order to pay its notes or bills there and to re- 
ceive money, which is paid down by inhabitants of London 
for the account of people living in the provinces, (p. 127.) 
Every banker gathers in the notes of the others and holds 
them. In every large city they meet once or twice a week and 
exchange their notes. The balance is paid by a check on Lon- 
don, (p. 134.) The purpose of banks is to fa^cilitate busi- 
ness. Whatever facilitates business, facilitates also specula- 
tion. Business and speculation are so closely linked in some 
cases, that it is difficult to tell where business stops and spec- 
ulation begins. Wherever there are banks, capital can be ob- 
tained more easily and cheaply. The cheapness of capital 
promotes speculation, just as the cheapness of beer and meat 
promotes gluttony and drunkenness (p. 137, 138). Since the 
banks issuing their own notes always pay in these notes, it may 
seem as though their discount business were transacted exclu- 
sively with the capital made in this way, but this is not so. A 
banker may very well pay all the bills discounted by him with 
his own notes, and yet nine-tenths of the bills in his posses- 
sion may represent actual capital. Eor while he may have 
given only his own paper money for these bills, it need not 
stay in the circulation until these bills become due. The bills 
may be running for three months, while the notes may return 
in three days. (p. 172.) The overdrawing of accounts by 
customers is a regular business practice. This is indeed the 
purpose, for which cash credit is granted. Cash credits are 



4/8 Capitalist Production. 

not granted on personal sect^rity, but on deposit of collateral 
papers (p. 174, 1Y5). A capital advanced on bonded wares 
has the same effect as though it had been advanced in dis- 
counting bills. If a man borrows 100 p.st on his goods as a 
security, it is the same as though he had sold them for a bill 
of exchange of 100 p.st. and discounted this bill with his 
banker. But this advance enables him to hold his goods over 
for a better condition of the market and to avoid sacrifices, 
which he would have had to make, in order to obtain money 
for urgent purposes (p. 180, 181). 

The Currency Question Reviewed, etc., p. 62, 63 : It is 
here indisputably true that the 1,000 p.st. which I deposit 
to-day with A are issued to-morrow and deposited with B. 
The day after to-morrow it may be issued once more by B 
and form a deposit with C, and so forth infinitely. The 
same 1,000 p.st. of money may, therefore, multiply themselves 
into an absolutely indeterminable sum of deposits by a series 
of transfers. Hence it is possible that nine-tenths of all de- 
posits in England may have no other existence hut that in the 
entries of the banker's boolcs, of whom every one stands good 
for his part of them. In Scotland, for instance, the money 
in circulation (and mostly paper money at that) never exceeds 
3 million p.st., while the deposits amount to 27 millions. So 
long as no general and sudden demand is made for the return 
of the deposits (a run on the bank), the same 1,000 p.st., 
traveling backward, may balance an equally indeterminable 
sum with the same facility. Since the same 1,000 p.st., with 
which I balance to-day my debt with some business man, may 
balance to-morrow his debt with some other business man, and 
the day after to-morrow balance this man's account, and so 
forth infinitely, it follows that the same 1,000 p.st. may pass 
from hand to hand and from bank to bank and balance any 
\ imaginable sum of deposits. 

[We have seen, that Gilbart knew even in 1834 that " what- 
ever facilitates business facilitates speculation, both being so 
intimately linked in many cases, that it is difficult to tell, 
where business stops and speculation begins." If the secviring 
of advances on unsold commodities is facilitated more and 
more, then more and more of such advances are taken, and 



Credit and Fictitious Capital. 479 

in the same proportion increases the temptation to manufac- 
ture commodities, or throw already manufactured ones upon 
distant markets, for no other immediate purpose than that of 
obtaining advances of money on them. To what extent the 
entire business world of a country may be seized by such a 
swindle, and what it finally comes to, may be studied in the 
history of English business during the years 1845 to 1847, 
which furnishes a flagrant example. There we can see what 
credit can accomplish. Before we mention some of the most 
conspicuous cases, we must make a few preliminary remarks. 

About the close of 1842 the pressure, which had crushed 
English industry almost without interruption since 1837, be- 
gan to weaken. During the following two years the demand 
of the foreign countries for products of English industry 
increased still more. The year 1845 to 1846 marked the 
period of greatest prosperity. In 1843 the opium war had 
opened the doors of China to English commerce. The new 
market offered a convenient excuse for the further expansion 
of already extended industries, particularly of the cotton in- 
dustry. " How can we ever produce too much ? We have 
to clothe 300 millions of people." Thus spoke a Manchester 
manufacturer to the writer in those days. But all the newly 
erected factory buildings, steam engines, spinning and weav- 
ing machines did not sufiice to absorb the surplus-value, which 
poured into them from Lancashire. With the same passion, 
which was exhibited in the expansion of production, the build- 
ing of railroads was undertaken. Here the longing of manu- 
facturers and merchants for speculation found its first 
satisfaction, as early as the summer of 1844. Stock was 
underwritten to the full extent possible, that is, so far as the 
money went to cover the first payments. The idea was that 
a way would be found in due time to get the missing amount. 
But when further payments were due (Question 1059, C. D. 
1848-57, indicates that the capital invested in railroads in 
1846-47 amounted to 75 million p.st), it was necessary to 
resort to credit, and as a rule the actual business of the firm 
itself had to add its drop of blood. 

In most cases the actual business was already overburdened. 



480 Capitalist Production. 

The enticing and high prices had misled people into far 
greater operations than the available cash justified. It was 
so easy, and cheap besides, to get credit. The bank discount 
was low. In 1844 it was If to 2|%, in 1845 until October 
it was less than 3%, then it rose for a little while to 5% 
(until February 1846), then it fell once more to 3^% in 
December 1846. The bank had in its cellars a supply of gold 
of unusual dimensions. All inland quotations stood higher 
than ever before. Why should a man let this fine opportunity 
pass by ? Why shouldn't he go in for all he was worth ? Why 
not send to the foreign markets, that longed for English 
goods, all the commodities that could be manufactured ? And 
why should not the manufacturer himself pocket the double 
gain arising from the sale of yarn and fabrics to the Far East, 
and from the sale, in England, of the back freight received 
in their stead ? 

Thus arose the system of mass consignments, by virtue of 
advances, to India and China, and this soon developed into 
a system of consignments purely for the sake of getting ad- 
vances, as described more at length in the following notes. 
This had to lead inevitably to an overcrowding of the markets 
and to a crash. 

This crash came as the aftermath of a crop failure in 1846. 
England, and still more, Ireland, required enormous imports 
of means of subsistence, particularly of corn and potatoes. 
But the countries that supplied these things could be paid 
only to a very small degree in products of English industry. 
They had to be paid in precious metals. This took at least 
nine millions of gold to foreign countries. Of this amount 
of gold fully seven and a half millions came out of the cash 
treasury of the Bank of England, whose freedom of action 
on the money market was seriously impaired thereby. The 
other banks, whose reserves are deposited with the Bank of 
England, which reserves are practically identical with those 
of the Bank of England, were thus compelled to cut down 
their own money accommodations. The rapidly and easily 
flowing stream of payments became clogged, first here and 
there, then universally. The banking discount, which had 



Credit and Fictitious Capital. 481 

still been 3 to 3-|% in January of 1847, rose to 7% in April, 
when the first panic broke out. Then a temporary lull came 
in summer, lowering this discount to 6^ and 6 % . But when 
the new crop failed likewise, the panic broke out afresh and 
more violently. The ofiicial minimum discount of the Bank 
rose in October to 7%, in JSTovember to 10%, in other words, 
the overwhelming mass of checks could be discounted only 
at outrageous rates of interest, or not at all. The general 
stopping of payments brought about the bankruptcy of sev- 
eral of the first firms and of very many medium-sized and 
small firms. The Bank itself was in danger of ruin from the 
shrewd Bank Acts imposing the limitations of 1844. In this 
emergency the government yielded to the universal demand 
and suspended these Bank Acts on October 25, thereby taking 
off the absurd legal fetters thrown around the Bank. IsTow 
the Bank was enabled to throw its supply of bank notes into 
circulation without any interference. The credit of these bank 
notes being practically guaranteed by the credit of the nation, 
and thus unimpaired, the shortness of money was immediately 
relieved in the most effective manner. Of course, quite a 
number of hopelessly caught large and small firms failed 
nevertheless even then, but the climax of the crisis had passed, 
the banking discount fell once more to 5% in September, and 
in the course of 1848 that renewed business activity Avas re- 
sumed, which took the edge off the revolutionary movements 
on the continent in 1849, and which inaugurated in the fifties 
a formerly unknown industrial prosperity and ended — in 
the crash of 1857.— F. E.] 

I. A document issued by the House of Lords in 1848 gives 
information concerning the depreciation of government papers 
and bonds during the crisis of 1847. According to it the 
depreciation of October 23, 1847, compared to the stand of 
values in February of the same year, amounted to 93,824,- 
217 poimds sterling in English government bonds, 1,358,288 
pounds sterling in dock and canal stock, and to 19,579,- 
820 pounds sterling in railroad stocks, a total of 114,762,325 
pounds sterling. 

II. With reference to the swindle in East Indian business, 

2E 



482 Capitalist Production. 

in which it was no longer a question of making drafts, because 
commodities had been bought, but rather of buying commodi- 
ties in order to be able to make out discountable drafts which 
should be convertible into money, the " Manchester Ckiard- 
ian " of ]^ovember 24, 1848, remarks that Mr. A in London 
instructs a Mr. B to buy from the manufacturer C in Man- 
chester commodities for shipment to a Mr. D. in East India. 
B pays C in six-months-drafts to be made by C on B. B se- 
cures himself by six-months-drafts on A. As soon as the goods 
are shipped, and the bill of lading mailed, A makes out six- 
months-drafts on D. The buyer and shipper thus get posses- 
sion of funds many months before the goods are actually paid 
for. And it was a common custom to renew the drafts when 
due under the pretense of allowing time for turn-over in such 
a protracted business. Unfortunately the losses in this busi- 
ness did not lead to its restriction, but to its extension. In 
proportion as the interested parties grew poor their need of 
making purchases increased, in order to find in new advances 
a compensation for capital lost in previous speculations. Pur- 
chases were then no longer regulated by supply and demand, 
but became the most important feature in the financial opera- 
tions of a shaky firm. But this is only one side of the picture. 
What happened in the export of manufacturing goods here, 
occurred in the purchase and shipment of goods on the other 
side. Firms in India, which had credit enough to get their 
checks discounted, bought sugar, indigo, silk or cotton, not 
because the purchase prices as compared with the latest London 
quotations promised a profit, but because previous drafts on a 
London firm would soon be due and would have to be covered. 
What was simpler than to buy a cargo of sugar, to pay for it 
in ten-months-drafts on the London firm, and to send the bills 
of lading by overland mail to London ? Less than two months 
later the bills of lading of these barely shipped goods, and 
thus the goods themselves, were pawned in Lombard Street, 
and the London house came into the possession of money eight 
months before the bills of exchange made out for these goods 
were due. And all this passed off smoothly, without interrup- 
tion or difficulties, so long as the discounting firms found 
enough money to advance on bills of lading and dock warrants, 
and to discount the drafts of Indian firms on select firms of 
Mincing Lane to unlimited amounts. 



Credit and Fictitious Capital. 483 

[This fraudulent procedure remained in vogue so long as 
the goods from and to India had to sail around the Cape. But 
since they pass through the Suez Canal this method of creat- 
ing fictitious capital has lost its foundation, thanks to steam 
navigation and the shortening of the trip. And when the tele- 
graph reported the stand of the Indian market to the English 
and that of the English market to the Indian business man on 
the same day, this method was completely killed, E. E.] 

III. The following is from the previously quoted report on 
Commercial Distress, 1847-48 : In the last week of April, 
1847, the Bank of England informed the Royal Bank of 
Liverpool, that it would henceforth reduce its discount busi- 
ness with the latter bank by one-half. This communication 
had a very disastrous effect, because the payments in Liverpool 
had lately been made far more in bills of exchange than in 
cash, and because the merchants, who ordinarily carried much 
cash money to the bank for the purpose of squaring their notes, 
had been able to bring only checks of late, which they had re- 
ceived themselves for their cotton and other products. This 
had assumed large proportions and caused the business diffi- 
culty. The endorsed checks, which the bank had to turn into 
cash for the merchants, had mostly been made out by outsiders, 
and had so far been balanced generally by the payments re- 
ceived for the products. The checks which the merchants now 
brought in place of the former cash were bills of exchange 
for different lengths of time and of different kinds, a consider- 
able number being bank checks for three months from date, 
the majority being checks for cotton. These bills of ex- 
change, when bank checks, had been endorsed by London bank- 
ers, the others were endorsed by merchants in Brasilian, Amer- 
ican, Canadian, West Indian, etc., business. . . . The 
merchants did not draw on one another, but the customers 
in the home country, who had bought products in Liverpool, 
covered them by drafts on London banks, or drafts on other 
firms in London, or on drafts of some one else. The commu- 
nication of the Bank of England caused a shortening of the 
running time of checks drawn against sales of foreign prod- 
ucts, which used to run frequently longer than three months, 
(p. 26, 27.) 

The period of prosperity in England, from 1844 to 1847 
was, as described above, connected with the first great rail- 



484 "Capitalist Production. 

road swindle. The above-named report makes the following 
statements concerning the influence of this swindle on busi- 
ness in general : In April, 1847, nearly all commercial firms 
had begun to starve their business more or less, by investing a 
part of their commercial capital in railroads (p. 41.) — Loans 
were also made by private parties, bankers and insurance com- 
panies at a high rate of interest, for instance, at 8% (p. 66). 
These large advances of these business firms to railroads caused 
them to take up in their turn too much capital from banks on 
discount checks, by which to carry on their own business (p. 
67. — • (Question) : Would you say that the payments on 
railroad stocks contributed much to the pressure which bur- 
dened the money market in April and October 1847 ? (An- 
swer) : I believe that they hardly contributed anything to 
the pressure in April. In my opinion they had rather 
strengthened than weakened the bankers going on into April, 
and perhaps even into the summer. For the actual employ- 
ment of the money followed by no means as rapidly as the de- 
posits ; as a result most of the banks had a rather large amount 
of railroad stocks in their hands in the beginning of the year. 
[This is corroborated by numerous statements of bankers in 
C. D. 1848-57.] This gradually melted away in summer and 
was considerably smaller on December 31. One cause of the 
pressure in October was the gradual decrease of the railroad 
funds in the hands of bankers ; between April 22, and Decem- 
ber 31, the balances of railroads in our hands were reduced 
by one-third. This effect was produced by railroad deposits 
in all of Great Britain ; they have gradually stripped the banks 
of deposits (p. 43, 44). — Samuel Gurney (Chief of the ill- 
famed firm of Overend Gurney & Co.) says likewise: In 
1846 there was a much greater demand for capital for rail- 
ways, but it did not raise the rate of interest. There was a 
condensation of small sums into larger masses, and these larger 
masses were consumed in our market ; so that on the whole the 
effect was to throw more money on the money market of the 
city, not so much to take it out. 

A. Hodgson, Director of the Liverpool Joint Stock Bank, 
shows to what extent bills of exchange may form a reserve 
for bankers : It was our custom to hold at least nine-tenths 
of all our deposits, and all money received from our custo- 
mers, in our bill books in the shape of bills of exchange, 



Credit and Fictitious Capital. 485 

which fell due from day to day ... so much so, that 
the amount of bills due daily during the time of the crisis 
almost equaled the amount of demands for payment made 
on us every day (p. 53). 

Speculative Bills. — IsTo. 5092. " By whom were the bills 
of exchange (against sold cotton) mainly endorsed?" — (R. 
Gardner, the cotton manufacturer mentioned several times in 
this work): "By produce jobbers; one trader buys cotton, 
transfers it to some jobber, draws checks on this jobber, and 
gets these bills discounted." — 'No. 5094. " And these bills of 
exchange go to the Liverpool banks and are discounted by 
them ? " — " Yes, and also by others. . . . Had not this ac- 
commodation existed, which was mainly allowed by the Liver- 
pool banks, cotton would have been, in my opinion, from 1^ d 
to 2 d per pound cheaper last year." — IsTo. 600. " You said 
that an enormous number of bills of exchange was in circu- 
lation, drawn by speculators upon cotton jobbers in Liver- 
pool; does the same apply to your advances on bills of ex- 
change for other colonial products than cotton ? " — (A. Hodg- 
son, banker in Liverpool) : " It refers to all kinds of colonial 
products, but most particularly to cotton." — No. 601. " Do 
you, as a banker, try to keep away from bills of exchange of 
this sort ? " — " ISTot at all ; we regard them as legitimate bills 
when kept within moderate bounds. . . . This sort of 
bills is often prolongTied." 

Swindle in the East Indian and Chinese Market, 1847. — 
Charles Turner (Chief of one of the first East Indian firms 
in Liverpool) : " We all know the occurrences, which have 
taken place in the matter of business to Mauritius and simi- 
lar businesses. The jobbers were accustomed to make ad- 
vances on goods, not only after their arrival, for the covering 
of the bills of exchange drawn for these goods, which is quite 
in order, and advances on bills of lading . . . they have 
also made advances on the product before it had been shipped, 
and in some cases before it had been manufactured. Eor in- 
stance, I . had, in one case in Calcutta, bought bills of ex- 
change amounting to 6-Y,000 pounds sterling; the proceeds 
of these goods went to Mauritius in order to assist in planting 
sugar there; the bills came to England, and more than half 
of them were protested; then, when the shipments of sugar 
finally arrived, by which these bills were to have been paid. 



486 Capitalist Production. 

it was found that this sugar had already been pawned to third 
parties, before it had been shipped, or even before it had been 
boiled (p. 78). 'Now the goods for the East Indian market 
must be paid to the manufacturer in cash; but this does not 
mean much, for if the buyer has some credit in London, 
he draws on London and discounts the drafts in London, 
where the discount is now low; he pays the manufacturer 
with the money so obtained ... it takes at least twelve 
months before a shipper of goods to India receives his return 
shipment ... a man with ten or fifteen thousand 
pounds sterling going into Indian business would secure credit 
from some London house to a considerable amount; he would 
give to this house 1 % and draw on it with the understanding, 
that the proceeds of the goods sent to India are to be sent 
to this London house; but the tacit understanding on both 
sides is that the London house shall not have to make any 
advances of cash; in other words, the drafts are prolongued 
until the return shipments arrive. The bills of exchange are 
discounted in Liverpool, Manchester, London, some of them 
are held by Scotch banks " (p. 79).— No. 730. " There is a 
firm, which recently failed in London ; the examination of its 
books revealed the following condition of affairs : Here is 
one firm in Manchester, and another in Calcutta ; they opened 
a credit with the London firm for 200,000 pounds sterling; 
that is, the business friends of this Manchester firm, who 
sent consignments of goods from Glasgow and Manchester to 
the firm in Calcutta, drew on the London house up to the sum 
of 200,000 pounds sterling; at the same time the understand- 
ing was, that the Calcutta firm would also draw on the London 
firm up to the sum of 200,000 pounds sterling; these bills 
of exchange were sold in Calcutta, other bills of exchange 
were bought with the proceeds, and these were sent to Lon- 
don in order to enable the firm there to pay the first drafts 
made by the Glasgow or Manchester firm. In this way this 
firm sent bills of exchange amounting to 600,000 pounds 
sterling into the world." — No. 971. " At present, when a 
firm in Calcutta buys a ship's cargo (for England) and pays 
for it with its own drafts on its London correspondent, and 
when the bills of lading are sent here, these bills of lading 
are used immediately for the purpose of securing advances in 
Lombard Street ; hence they have eight months time in which 



Credit and Fictitious Capital. 487 

to make use of the money before their correspondents have to 
pay the drafts." — 

IV. In the year 1848 a secret committee of the Upper 
House was in session on an investigation of the causes of the 
crisis of 1847. The testimony of the witnesses before this 
committee was not published, however, until 1857 (Minutes 
of Evidence, taken before the Secret Committee of the H. of 
L. appointed to inquire into the Causes of Distress, etc., 
1857; quoted as C. D. 1848-57). Here Mr. Lister, the Di- 
rector of the Union Bank of Liverpool, testified among other 
things to the following: 2444. "There was, in the spring 
of 1847, an unwarranted extension of credit ... be- 
cause business men transferred their capital from their busi- 
ness to railroads and nevertheless wanted to continue their 
business on the old scale. Every one thought probably at 
first that he could sell the railroad stocks at a profit and thus 
replace the money in the business. He found, perhaps, that 
this was impossible, and then secured credit in his business 
where he paid cash formerly. This gave rise to an extension 
of credit." 

2500. " These bills of exchange, on which the banks that 
had accepted them incurred losses, were they bills mainly for 
com or for cotton? . . . They were bills for products 
of all kinds, corn, cotton and sugar, and products of all sorts. 
There was at that time nothing, with the exception of oil, 
perhaps, that did not fall in price." — 2506. " A jobber, 
who accepts a bill of exchange, does not do so without being 
sufficiently secured, also against a fall in the price of the 
commodity which serves as a security." 

2512. " Two kinds of bills of exchange are drawn for 
products. To the first kind belongs the original draft, which 
is made out on the other side on the importer. . . . The 
drafts which are made out in this way for products are fre- 
quently due before the goods arrive. For this reason the 
merchant who has not enough money when the products ar- 
rive, must pawn them to some broker until he can sell them. 
Then a draft of the other kind is immediately drawn on the 
broker by the Liverpool merchant, on the strength of those 
products ... it then becomes the business of the banker 
to ascertain, whether he has those goods and to what extent 
he has made advances on them. He must convince himself, 



488 Capitalist Production. 

that the broker has security, in order to make good eventual 
losses." 

2516. "We receive also bills of exchange from foreign 
countries. . . . Some one buys on the other side a bill 
of exchange on England, and sends it to some firm in Eng- 
land; we cannot tell by looking at this bill, whether it has 
been drawn reasonably or unreasonably, whether it represents 
products or wind." 

2533. " You said that foreign products of nearly all 
kinds are sold at a heavy loss. Do you believe, that this was 
due to unwarranted speculations in these products ? " — " It 
arose from a very large import, while no adequate consump- 
tion existed to take care of it. Erom all indications the con- 
sumption fell off considerably." — 2537. "In October 

. . products were almost unsaleable." 

How it is that a general scramble for safety is made at the 
critical stage of a crisis is explained in the same report by an 
expert of the first order, the worthy and crafty Quaker, Samuel 
G'urney of Overend Gurney & Co. : 1262. " When a panic 
reigns, a business man does not ask himself, how profitably 
he can invest his bank notes, or whether he will lose 1 or 2% 
in the sale of his treasury notes or 3% bonds. Once that he 
is under the suggestions of fright, he cares nothing about gain 
or loss ; he gets himself into a safe place, the rest of the world 
may do what it pleases." 

V. Concerning the mutual unmasking of two markets 
Mr. Alexander, a merchant in the East Indian trade, testi- 
fies before the Committee of the Lower House on the Bank 
Acts of 185Y (quoted as B. C. 1857): 4330. "At present, 
if I invest 6 shillings in Manchester, I get 5 shillings back 
in India; if I invest 6 shillings in India, I get 5 shillings 
back in London." In this way the Indian market is ex- 
posed by England, and the English by India. And this took 
place in the summer of 1857, barely ten years after the bitter 
experience of 1847 ! 



Accumulation of Money-Capital. 489 



CHAPTER XXVI. 

ACCUMULATION OF MONEY-CAPITAL. ITS INFLUENCE ON THE 
KATE OF INTEREST. 

" In England, a steady accumulation of additional wealth 
takes place, which has a tendency to assume ultimately the 
form of money. But next to the desire to acquire money, 
the most insistent desire is that of disposing of it by some 
kind of investment bringing interest or profit ; for money as 
money does not bring wealth. Unless, therefore, a gradual 
and adequate extension of the field of investment takes place 
simultaneously with this steady accession of additional 
capital, we must be exposed to periodical accumulations of 
money seeking investment, which will be of greater or smaller 
importance according to circumstances. For a long series of 
years the national debt was the great means of absorbing the 
superfluous wealth of England. Since it reached its maxi- 
mum in 1816 and no longer acts as an absorbent, every year 
a sum of at least 2Y millions has been seeking other fields of 
investment. Moreover, various return payments of capital 
were made. . . . Enterprises which require a large cap- 
ital for their execution and make an opening from time to 
time for the excess of unemployed capital . . . are abso- 
lutely necessary, at least in our country, in order to take care 
of the periodical accumulations of the superfiuous wealth of 
society, which cannot find room in the ordinary fields of in- 
vestment." (The Currency Question Reviewed, London, 
1845, p. 32.) Of the year 1845 the same work says: 
" Within a very short period the prices have leaped upward 
from the lowest point of depression. . . . The 3% na- 
tional debt stands almost at par. . . . The gold in the 
vaults of the Bank of England exceeds all former amounts 
stored away there. Stocks of all kinds are quoted at prices, 



490 Capitalist Production, 

which are unheard of in ahnost every case, and the rate of in- 
terest has fallen so much, that it is nearly nominal. . . . 
All these are proofs that another heavy accumulation of un- 
employed wealth exists in England, that another period of 
speculative overheating is imminent." (Ibidem, p 35.) 

" Although the import of gold is not a reliable indication 
of profit in foreign commerce, nevertheless a part of this im- 
port of gold, in the absence of any other explanation, repre- 
sents on its face such a profit." (J. G. Hubbard, The Cur- 
rency and the Country, London, 1843, p. 41.) Take it that 
in a period of good steady business, profitable prices, and well 
supplied circulation of money, a crop failure gives rise to an 
export of 5 millions of gold and to an import of com to the 
same amount. The circulation " (meaning, as we shall see 
immediately, the unemployed money-capital, not the medium 
of circulation. F. E.) " is reduced by the same amount. 
The private individuals may still possess means of circula- 
tion to the same amount, but the deposits of the merchants in 
the banks, the outstanding balances of the banks with their 
money brokers, and the reserves in their treasuries will all be 
reduced, and the immediate result of this reduction to the 
amount of the unemployed capital will be a rise in the rate of 
interest, say from 4% to 5%. Since business is sound, con- 
fidence is not shaken, but credit will be valued more highly." 
(Ibidem, p. 42.) " If the prices of commodities fall uni- 
versally, the superfluous money flows back to the banks in the 
form of increased deposits, the plethora of unemployed capi- 
tal reduces the rate of interest to a minimum, and this condi- 
tion of affairs lasts until either higher prices or a brisker 
business call the slumbering money into service, or until it 
has been absorbed by investment in foreign securities or for- 
eign commodities." (P. 68.) 

The following extracts are once more taken from the par- 
liamentarian report on Commercial Distress, 1847-57. — In 
consequence of the crop failure and famine of 1846-47 a 
heavy import of means of subsistence was necessary. " Hence 
a great excess of imports over exports. . . . Hence 
a considerable drain of money from banks, and an increased 



Accumulation of Money-Capital. 491 

demand upon the discount brokers from people who had bills of 
exchange to discount; the brokers began to inspect the bills of 
exchange more closely. The accommodation hitherto granted 
was seriously restricted, and weak houses failed. Those who 
relied wholly upon credit went to the wall. This increased 
the already marked unrest; bankers and others found, that 
they could not be as certain as formerly of transforming 
their bills of exchange and other securities into bank notes, 
in order to fulfill their obligations ; they restricted the accom- 
modation still more and frequently refused it altogether ; they 
locked their bank notes up in many instances, in order to meet 
their own future obligations; they preferred not to let go of 
them at all. The unrest and confusion increased daily, and 
without the letter of Lord John Eussel the general bankruptcy 
was imminent." (P. 74—75.) The letter of Eussel sus- 
pended the Bank Acts. — The previously mentioned Charles 
Turner testifies : " Some firms had large means, but they 
were not available. Their entire capital was tied up in real 
estate in Mauritius, or in indigo or sugar factories. Once 
that they had contracted obligations for 5 or 600,000 pounds 
sterling, they had no means free for the payment of bills of ex- 
change, and finally it was seen, that they could pay their bills 
of exchange only by means of credit, and so far as that went." 
(P. 81.) — The aforesaid S. Gurney said: "At present 
(1848) there prevails a contraction of business and a great 
plethora of money. — l!^o. 1763. I do not believe that it was 
a lack of capital, which drove the rate of interest so high ; it 
was the alarm, the difficulty of obtaining bank notes." 

In 1847 England paid at least nine million pounds sterling 
in gold to foreign countries for imported means of subsistence. 
Of this amount seven and a half millions came from the bank 
of England and one and a half million from other sources. 
(P. 245.) — Morris, the Governor of the Bank of England: 
" On October 23, 1847, the public funds and the canal and 
railroad stocks were already depreciated by 114,752,225 
million pounds sterling." (P. 312.) The same Morris, 
when questioned by Lord G. Bentinck : " Is it not known to 
you that all capital invested in papers and products of all 



492 Capitalist Production. 

kinds was depreciated in the same waj, that raw materials, 
cotton, silk, wool were sent to the continent at the same cut 
prices, and that sugar, coffee and tea were auctioned off in 
forced sales ? " — " It was inevitable that the nation should 
make considerable sacrifices, in order to counteract the drain 
of gold caused by the enormous imports of means of subsist- 
ence." — " Don't you believe that it would have been better 
to touch the eight million pounds sterling stored in the vaults 
of the bank, instead of trying to recover the gold with such 
sacrifices ? " — " I do not believe that." — I^ow to the com- 
mentaries on this heroism. Disraeli questions Mr. W. Cot- 
ton, the Director and former Qiovernor of the Bank of Eng- 
land. " What was the dividend received by the stockholders 
of the bank in 1844? "—" It was 7% for that year."—" And 
the dividend for 1847?" — " Mne per cent." — "Does the 
bank pay the income tax for its stockholders in the current 
year?"— "Yes, Sir."— " Did it do so in 1844?"— "m, 
Sir." ^* — " Then this Bank Act (of 1844) worked very much 
to the advantage of the stockholders. . . . The result is, 
then, that since the introduction of the new Act the dividend 
of the stockholders has risen from 7% to 9%, and that the 
income tax is now also paid by the bank, while formerly it 
had to be paid by the stockholders ? " — " That is quite right." 
— (IsTo. 4356-4361.) 

Concerning the formation of hoards in banks during the 
crisis of 1847, Mr. Pease, a provincial banker, has the fol- 
lowing to say: 4605. "As the bank was compelled to raise 
its rate of interest more and more, the apprehension grew uni- 
versally ; the rural banks increased the quantities of money 
in their possession and likewise the amounts of their notes ; 
and many of us, who would ordinarily carry only a few hun- 
dred pounds in gold or bank notes, stored up at once thou- 
sands in cash boxes and desks, since there was great uncer- 
tainty concerning the discount and the possibility of circulat- 

^* In other words, formerly the dividend was first determined and then the 
income tax deducted on payment of the dividend to the individual stockholder; 
but after 1844 the income tax was first paid out of the total profit of the bank, 
and then the dividend paid " free of income tax." The same nominal percentages 
are therefore higlier in the latter case by the amount of the tax, — F, E, 



Accumulation of Money-Capital. 493 

ing bills of exchange on the market ; and consequently a -uni- 
versal accumulation of hoards ensued," — A member of the 
Committee remarks: 4-691. "Accordingly, whatever may 
have been the cause during the last 12 years, the result was 
certainly more in favor of the Jew and the money broker 
than in favor of the productive class in general." 

To what extent a money broker exploits times of crisis, is 
revealed by Tooke : "In the metal ware business of War- 
wickshire and Staffordshire very many orders were rejected 
in 1847, because the rate of interest, which the manufacturer 
had to pay for discounting his bills of exchange, would have 
more than swallowed his entire profit." (ISTo. 5451.) 

Let us now take another report of Parliament, the Eeport 
of the Select Committee on Bank Acts, communicated from 
the Commons to the Lords, 1857 (quoted further along as 
B. C. 1857). In it Mr. Norman, Director of the Bank of 
England and a leading light among the champions of the 
Currency Principle, is questioned as follows : 

3635. " You said you were of the opinion, that the rate 
of interest depends, not on the mass of bank notes, but on the 
demand and supply of capital. Would you state, what you 
comprise under the head of capital, outside of bank notes and 
hard cash ? " — " I believe the general definition of capital is : 
Commodities or services used in production. — 3636. " Do 
you include all commodities in the term capital, when you 
speak of the rate of interest ? " — " All commodities used in 
production." — 3637. " You include all that in the term 
capital, when you speak of the rate of interest ? " — " Yes, 
Sir. Let us assume that a cotton manufacturer needs cotton 
for his factory, then he will probably secure it by obtaining 
an advance from his banker, and with the money so obtained 
he will go to Liverpool and buy. . What he really needs is 
cotton ; he does not need the bank notes or the money except 
as means of getting the cotton. Or he may need the means to 
pay his laborers ; then he again borrows notes and pays the 
wages of his laborers with them ; and the laborers on their 
part need food and shelter, and the money is a means of pay- 
ing for them." — 3638. " But interest is paid for this 



494 Capitalist Production. 

money ? " — " Yes, Sir, in the first instance ; but take another 
case. Take it that he buys the cotton on credit, without get- 
ting any advance from the bank ; tlien the difference between 
the ^rice for cash payment and the price on credit at the time 
when payment is due is the measure of the interest. There 
would be interest even if no money existed." 

This self-complacent rubbish is quite worthy of this pillar 
of the Currency Principle. First the brilliant discovery, 
that bank notes or gold are means of buying something, and 
that they are not borrowed for their own sake. And this 
is supposed to explain, that the rate of interest is regulated, 
by what? By the demand and supply of commodities, that 
v/ere so far known to regulate only the market prices of com- 
modities. But very different rates of interest are compatible 
with the same market prices of commodities. — But now take 
another look at this slyness. He hears the correct remark: 
" But interest is paid for this money ? " and this, of course, 
implies the question : " What has the interest, which the 
banker receives, who does not deal in commodities at all, to 
do with these commodities ? And do not manufacturers re- 
ceive money at the same rate of interest, although they in- 
vest it in widely different markets, that is, in markets, in 
which widely different conditions of demand and supply pre- 
vail, so far as the commodities used in production are con- 
cerned ? " And all that this solemn genius has to say in re- 
ply to these questions, is tliat the manufacturer, who buys 
cotton on credit, pays interest, the measure of which is " The 
difference between the price for cash payment and the price 
on credit at the time when payment is due." Vice versa. 
The prevailing rate of interest, whose regulation the genius 
ISTorman is asked to explain, is the measure of the difference 
between the cash price and the credit price to the time of due 
payment. First the cotton is to be sold to its cash price, and 
this is determined by the market price, which is itself regu- 
lated by the condition of supply and demand. Say that the 
price is 1,000 pounds sterling. This concludes the transac- 
tion between the manufacturer and the cotton broker, so far 
as buying and selling is concerned. ISTow a second transac- 



Accumulation of Money-Capital. 495 

tion is added. This takes place between the lender and the 
borrower. The value of 1,000 pounds sterling is advanced 
to the manufacturer in the shape of cotton, and he has to re- 
pay it in money, say, in three months. And the interest for 
1,000 pounds sterling, determined by the market rate of in- 
terest, forms the addition over and above the cash price. 
The price of cotton is determined by supply and demand. 
But the price of the advance of the value of cotton, of 1,000 
pounds sterling for three months, is determined by the rate 
of interest. And this fact, that the cotton itself is thus trans- 
formed into money-capital, proves to Mr. ISTorman that in- 
terest would exist, even if no money existed. If there were 
no money at all, there would certainly be no general rate of 
interest. 

There is, in the first place, the vulgar conception of capital 
as " commodities used in production." So far as these com- 
modities serve as capital, their value as capital compared to 
their value as commodities is expressed in the profit, which 
is made out of their productive or mercantile employment. 
And the rate of profit has under all circumstances something 
to do with the market price of the bought commodities and 
their supply and demand, although it is determined besides 
by circumstances of quite a different kind. And there is no 
doubt that the rate of interest is generally limited by the rate 
of profit. But Mr. ISTorman is precisely asked to tell us how 
this limit is determined. It is determined by the supply and 
demand of money-capital as distinguished from the other 
forms of capital. Now one might ask furthermore: How 
are the demand and supply of money-capital determined ? It 
is doubtless true, that a tacit connection exists between the 
supply of commodity-capital and the supply of money-capi- 
tal, and also that the demand of the industrial capitalist for 
money-capital is determined by the actual conditions of real 
production. Instead of giving us information on this point, 
Norman offers us the sage opinion, that the demand for 
money-capital is not identical with the demand for money as 
such, and this wisdom is advanced for no other reason than 
that behind him. Above Overstone and other Currency proph- 



496 Capitalist Production. 

ets always stands the bad conscience, which makes them aware 
that they are trying to make capital of the mere medium of 
circulation by the artificial method of legislative intereference 
and to raise the rate of interest. 

'Now to Lord Overstone, alias Samuel Jones Loyd, who is 
asked to explain, why he takes 10% for his " money," because 
the " capital " in the country is so scarce. 

3653. " The fluctuations in the rate of interest arise from 
one of two causes : From a change in the value of capital " 
[excellent ! Value of capital, generally speaking, signifies 
precisely the rate of interest! A change in the rate of in- 
terest is thus made to arise from a change in the rate of in- 
terest. The phrase ' value of capital ' never signifies any- 
thing else theoretically, as we have shown in another place. 
Or, if Lord Overstone means the rate of profit by the phrase 
' value of capital,' then this deep thinker comes back to the po- 
sition that the rate of interest is regulated by the rate of 
profit!] " or from a change in the sum of money available in 
the country. All great fluctuations of the rate of interest, 
great either in duration or in the extent of the fluctuations, 
may be clearly traced to changes in the value of capital. 
There can be no more striking illustration of this fact than 
the rise of the rate of interest in 1847 and again in the two 
last years (1855-56) ; the lesser fluctuations of the rate of in- 
terest, which arise from a change in the quantity of the avail- 
able money, are small in duration and extension. They are 
frequent, and the more frequent they are, the more effectively 
they accomplish their .purpose." This purpose is no other 
than that of making bankers like Overstone rich. Friend 
Samuel Gurney expresses himself very naively on this point 
before the Committee of Lords, C. D. 1848. " Are you of 
the opinion, that the great fluctuations of the rate of interest, 
which took place last year, were advantageous to the bankers 
and money brokers, or not ? " — "I believe they were advan- 
tageous to the money brokers. All fluctuations of business 
are advantageous to the knov/ing men." — 1325. "Should 
not the banker ultimately lose through the high rate of interest 
owing to the pauperisation of his best customers ? " — " No,* 



Accumulation of Money-Capital. 497 

Sir, I do not think that this result prevails to any appreciable 
degree." — There you can see what talk will do. 

We shall recur to the question of the influence of the 
quantity of available money on the rate of interest later on. 
But we must note right here that Overstone once again takes 
one thing for another in this case. The demand for money- 
capital in 1847 (there was no worry on account of scarcity of 
money, or the " quantity of available money," as he called it, 
before October) increased for various reasons, such as the dear- 
ness of corn, rising cotton prices, unsaleable sugars through 
overproduction, railroad speculation and slumps, overcrowding 
of foreign markets with cotton goods, the above described forced 
export to and import from India for the purpose of mere 
swindling with bills of exchange. All these things, the over- 
production in industries as well as the underproduction in 
agriculture, in other words, widely diiferent causes, led to an 
increased demand for money-capital in the shape of credit 
and money. The increased demand for money-capital had its 
causes in the course of the productive process itself. But 
whatever may have been the causes, it was the demand for 
wone^/'Capital which brought about the rise in the rate of 
interest, in the value of money-capital. If Overstone means 
to say that the value of money-capital rose because it rose, 
he is simply repeating himself. But if he means by " value of 
capital " a rise in the rate of profit which caused a rise in the 
rate of interest, we shall see immediately that this was not 
the case here. The demand for money-caj)ital, and conse- 
quently the " value of capital," may rise even though the 
profit may decrease; as soon as the relative supply of money- 
capital decreases, its " value " increases. Overstone wants to 
establish the fact that the crisis of 1847, and the high rate of 
interest going with it, had nothing to do with the " quantity 
of available money," that is, with the regulations of the 
Bank Acts of 1844 which he had inspired; but as a matter 
of fact this crisis had something to do with these things, 
so far as the fear of exhausting the bank reserve — a creation 
of Overstone — added a money panic to the crisis of 1847-48, 
But this is not the main point here. There was a dearth 

2F 



498 Capitalist Production. 

of money-capital, caused by the excessive volume of opera- 
tions compared to the available means and brought to an 
eruption by disturbances in the process of production due to 
a crop failure, overcapitalisation of railroads, over-production, 
particularly of cotton goods, swindling practices in the Indian 
and Chinese business, speculation, superfluous imports of 
sugar, etc. What the people, who had bought com at 120 
shillings per quarter, lacked when it fell to 60 shillings, were 
the 60 shillings which they had paid too much and the corres- 
ponding credit for that amount in the Lombard advance on 
corn. It was by no means the lack of bank notes that pre- 
vented them from transforming their corn into money at its 
old price of 120 shillings. The same things applied to those 
who had bought sugar to such an excess that it became almost 
unsaleable. It applies likewise to the gentlemen who had 
tied up their floating capital in railroads and relied on credit 
to make up for it in their " legitimate " business. To Over- 
stone all this is expressed in " a moral sense of the enhanced 
value of his mioney." But this enhanced value of money- 
capital had its direct counterpart on the other side in the shape 
of the depreciated money-value of the real capital (commodity- 
capital and productive capital). The value of capital in one 
form rose, because the value of capital in the other forms 
fell. Overstone, however, seeks to identify these two kinds 
of value of different sorts of capital in one sole value of 
capital in general, and he does it by opposing both of them 
to a scarcity of the medium of circulation, of available money. 
But the same amount of money-capital may be loaned with 
very different quantities of medium of circulation. 

Take, for instance, his example of the year 1847. The 
official bank rate of interest stood at 3 to 3|% in January; 
4 to 4-|% in February. In March it was generally 4%. 
April (panic) 4 to T^%. May 5 to 5|^o. June on the 
whole 5%. July 5%. August 5 to 5|%. September 
5% with trifling variations of 5^, 5|, 6%. October 5, 
5^-, Y%. Is^vember 1 to 10%. December Y to 5%.— 
In this case the interest rose, because the profits decreased 
and the money-values of commodities fell enormously. If 



Accumulation of Money-Capital. 499 

Overstone says here that the rate of interest rose in 184Y, be- 
cause the value of capital rose, he cannot mean anything else 
by " value of capital " but the value of money-capital, and this 
is precisely the rate of interest and nothing else. But later 
the cloven hoof appears and the value of capital is identified 
with the rate of profit. 

As for the high rate of interest in 1856, Overstone was in- 
deed ignorant of the fact that this was partially a symptom 
of the supremacy of credit jobbers, who paid interest, not 
from their profit, but with the capital of others ; he maintained 
even a few months before the crisis of 1857 that " business 
is quite sound." 

He testifies furthermore : 3722. " The conception that 
the business profit is destroyed by raising the rate of interest 
is highly erroneous. In the first place, a rise in the rate of 
interest is rarely of long duration; in the second place, if it 
is of long duration and considerable, it is in the nature of 
things a rise in the value of capital, and why does the value 
of capital rise ? Because the rate of profit has risen." — 
Here, then, we learn at last, what the meaning of " value of 
capital " is. We remark, by the way, that the rate of profit 
may hold itself at a high level for a long time, and yet the 
industrial capitalist's profit may fall and the rate of interest 
rise to a point where it swallows the greater portion of the 
profit. 

3724. " The raise of the rate of interest was a result of 
the enormous expansion of business in our country, and of 
the great rise in the rate of profit ; and if complaint is made, 
that the raised rate of interest destroys these two things, 
which were its own cause, it is a logical absurdity, which one 
does not know how to characterise." — This is just as logical 
as though he had said : The increased rate of profit was the 
r.esult of the raise of prices by speculation, and if complaint 
is made, that the raise of prices destroys its own cause, namely 
speculation, it is a logical absurdity, etc. That anything can 
ultimately destroy its own cause, is a logical absurdity only 
for the usurer, who is in love with the high rate of interest. 
The greatness of the Romans was the cause of their conquests, 



500 Capitalist Production. 

and their conquests destroyed their greatness. Wealth is the 
cause of luxury, and luxury has a destructive influence upon 
wealth. The wiseacre ! The idiocy of the present bourgeois 
world cannot be characterised more markedly than by the re- 
spect, which the " logic " of the millionaire, of this dung- 
hill aristocrat, commanded in all England. By the way, even 
if high profits and an expansion of business may be the cause 
of a high rate of interest, a high rate of interest is for that 
reason by no means a cause of high profit. The question is 
precisely, whether such a high rate of interest (as was seen 
actually during the crisis) did not continue, or even reach 
its climax, after the high rate of profit had long gone the way 
of the flesh. 

3718. " As for a great increase of the rate of discount, 
it is a circumstance, which arises entirely from the increased 
value of capital, and the cause of this increased value of capi- 
tal, I believe, may be discovered by every one with perfect 
clearness. I have already mentioned the fact, that during the 
13 years, which this Bank Act was in force, the commerce of 
England grew from 45 to 120 million pounds. Consider all 
the events implied by this brief statement in figures, consider 
the enormous demand for capital, which such a gigantic in- 
crease of commerce carries with it, and consider at the same 
time, the natural source of this great demand, namely the 
annual savings of the country, have been consumed during 
the last three or four years by unprofitable expenditures for 
purposes of war. I confess, I am surprised, that the rate of 
interest is not much higher ; or in other words, I am surprised, 
that the shortage of capital in consequence of these gigantic 
operations is not much more stringent, than you have found 
it to be." 

What a wonderful mixture of words on the part of our 
logician of usury ! Here he is again with his increased value 
of capital ! He seems to imagine, that on one side this enor- 
mous expansion of the process of reproduction took place, an 
accumulation of real capital, and that on the other side a 
" capital " existed, for which an " enormous demand " arose, 
in order to accomplish this gigantic increase of commerce! 



Accumulation of Money-Capital. 501 

Was not this enormous increase of production itself this in- 
crease of capital, and if it created a demand, did it not also 
create the supply, including an increased supply of money- 
capital ? If the rate of interest rose so high, it did so merely 
because the demand for money-capital increased still more 
rapidly than its supply, which means, in other words, that 
the expansion of industrial production carried with it a 
greater volume of its transactions on a credit basis. That is 
to say, the actual industrial expansion caused an increased 
demand for " accommodation," and this last demand is evi- 
dently what our banker means by the " enormous demand for 
capital." It was surely not the expansion of this mere de- 
mand for capital, which raised the export business from 45 
to 120 million pounds sterling. And again, what does Over- 
stone mean when he says, that the annual savings of the coun- 
try swallowed by the Crimean War form the natural source 
of the supply for this great demand ? In the first place, how 
did England get its accumulations from 1792 to 1815, which 
was a far greater war than the little Crimean War ? In the 
second place, if the natural source dries up, from what source 
did capital flow then ? It is well known that England did not 
ask for any loans from foreign countries. But if there is 
an artificial source aside from the natural one, it would be a 
very peculiar method for a nation to utilise the natural source 
in war and the artificial one in business. But if only the old 
money-capital was available, could it double its effectiveness 
through a high rate of interest ? Mr. Overstone thinks evi- 
dently that the annual savings of the country (which were sup- 
posed to have been consumed in this case) are converted only 
into money-capital. But if no real accumulation, that is, no 
real expansion of production and augmentation of the means 
of production, took place, what good would the accumulation 
of debtor's claims in money on this production do ? 

The increase in the " value of capital," which follows from 
a high rate of profit, is mistaken by Overstone for an increase, 
which follows from a greater demand for money-capital. 
This demand may increase for reasons, which are quite inde- 
pendent of the rate of profit. He quotes himself some exam- 



502 Capitalist Production. 

pies, whicli show that it rose in 1847 as a result of the de- 
preciation of real capital. He means by the value of capital 
now real capital now money-capital, just as it may suit his 
purpose. 

The dishonesty of our banking lord, and his narrow minded 
banker's point of view, which he aggravates by posing as a 
schoolmaster, are further revealed by the following: 3728. 
" You said, that in your opinion the rate of discount is of no 
particular significance for the merchant ; will you kindly state 
what you regard as an ordinary rate of profit ? " — Mr. Over- 
stone declares that it is " impossible " to answer this ques- 
tion. — 3729. " Suppose the average rate of profit to be 
from 7 to 10% ; in that case, a change in the rate of discount 
from 2% to 7 or 8% must appreciably affect the rate of 
profit, must it not?" [This question confounds the rate of 
industrial profit with the average rate of profit and over- 
looks the fact, that this last rate of profit is the common source 
of interest and industrial profit. The rate of interest may 
leave the average rate of profit untouched, but not the indus- 
trial profit.] Overstone replied: "In the first place, busi- 
ness men will not pay a rate of discount, which takes away 
most of their profits beforehand ; they will rather close up 
their business." [Yes, if they can do so without ruining 
themselves. So long as their profit is large, they pay the 
discount, because they are willing, and when profit is low, 
they pay the discount because they must.] " What does dis- 
count mean ? Why does a man discount a bill of exchange ? 
Because he desires to obtain a larger capital." 
[Hold on ! Because he desires to anticipate the return of 
his tied-up capital in the form of money and to avoid the 
stopping of business; because he must meet due payments. 
He demands additional capital only when business is good, 
or when he speculates on another man's capital, though busi- 
ness may be bad. The discount is by no means a mere device 
to expand business.] "And why does he wish to obtain 
command of a greater capital ? Because he wants to invest 
this capital ; and why does he want to invest this capital ? 



Accumulation of Money-Capital. 503 

Because it is profitable ; but it Avould not be profitable for him, 
if the discount were to swallow his profit." 

This self-complacent logician assumes that bills of exchange 
are discounted only for the purpose of expanding business, 
and that business is expanded, because it is profitable. The 
first assumption is wrong. The ordinary business man dis- 
counts, in order to anticipate the monej-form of his capital 
and thereby to keep his process of reproduction in flow; not 
in order to expand his business or secure additional capital, 
but in order to balance the credit Avhich he gives by the credit 
which he takes. And if he wants to expand his business on 
credit, the discounting of bills will do him little good, because 
it is merely the transformation of capital, which he has al- 
ready in his hands, from one form into another ; he will rather 
take up a direct loan for a long time. Only the credit swin- 
dler will get his fraudulent bills of exchange discounted for 
the purpose of expanding his business, in order to cover one 
rotten business by another; not for the purpose of making 
profits, but of getting possession of the capital of another man. 

After Mr. Overstone has thus identified discount with the 
borrowing of additional capital [instead of identifying it with 
the transformation of bills of exchange representing capital 
into money], he beats at once a retreat, when the thumbscrews 
are applied to him. — 3730. " Must not merchants, once that 
they are engaged in business, continue their operations for a 
certain period of time in spite of a temporary increase in the 
rate of interest ? " — Overstone : " There is no doubt, that in 
any single transaction, if a man can get hold of capital at a 
low rate of interest instead of a high rate of interest, taking 
the matter from this narrow point of view, that it is pleasant 
for him." — ■ But it is a very wide point of view, which en- 
ables Mr. Overstone now to understand by " capital " all of a 
sudden only his banker's capital, and to assume that the man, 
who discounts a bill of exchange with him, is a man without 
capital, just because his capital exists in the form of commodi- 
ties, or because the money-form of his capital is a bill of ex- 
change, which Mr. Overstone converts into another money- 
form. 



504 Capitalist Production. 

3732. " With reference to the Bank Act of 1844, can you 
state what was the approximate relation of the rate of interest 
to the gold reserve of the bank; is it true, that, if the gold 
in the bank amounted to 9 or 10 millions, the rate of interest 
was 6 or 7%, and when it amounted to 16 millions, the rate 
of interest was about 3 or 4% ? " [The cross-examiner wants 
to compel him to explain the rate of interest, so far as it is in- 
fluenced by the amount of gold in the bank, by the rate ol 
interest, so far as it is influenced by the value of capital.] — 
" I do not say, that this is the case . . . but if it is, then 
we should in my opinion resort to still more stringent meas- 
ures than those of 1844; for if it should be true, that the 
greater the quantity of gold the lower the rate of interest, 
then we should go to work, according to this view of the mat- 
ter, and increase the gold reserve to an unlimited amount, 
and then we should reduce the rate of interest to zero." — 
The cross-examiner Cayley, unmoved by this poor joke, con- 
tinues: 3733. "If this were so, assuming that 5 millions in 
gold were returned to the bank, then in the course of the next 
six months the gold reserve would amount to 16 millions, and 
assuming that the rate of interest should fall thus to 3 or 
4%, how could one maintain, that the fall in the rate of 
profit was due to a great slump in business ? " — " I said the 
recent great increase in the rate of interest, not the fall in 
the rate of interest, is intimately connected with the great ex- 
pansion of business." — But what Cayley says is this : If a 
rise of the rate of interest together with a contraction of the 
gold reserve, is an indication of an expansion of business, then 
a fall of the rate of interest together with an expansion of 
the gold reserve, must be an indication of a contraction of 
business. Overstone has no answer to this. — 3736. Ques- 
tion : " I note that Your Lordship said that money is an in- 
strument for securing capital." [This is precisely a mistake, 
this conception of money as an instrument ; it is a form of 
capital.] " During a decrease of the gold reserve (of the 
Bank of England) does not the difficulty consist rather in the 
fact that capitalists cannot get any money ? " — Overstone : 
" ISTo, it is not the capitalists, it is the non-capitalists, who 



Accumulation of Money-Capital. 505 

seek to obtain money, in order to carry on the business of 
people, who are not capitalists." — Here he declares point 
blank, that manufacturers and merchants are not capitalists, 
and that the capital of the capitalist is only money-capital. — 
3737. " Are the people who draw bills of exchange no capi- 
talists ? " — " The people who draw bills of exchange are prob- 
able capitalists and j)robably not." — Here he is stuck. 

He is then asked, whether the bills of exchange of mer- 
chants do not represent the commodities, which they have sold 
or shipped. He denies, that these bills represent the value 
of the commodities just exactly as a bank note represents gold. 
(3740 and 41.) This is a little insolent. 

3742. " Is not the purpose of the merchant that of obtain- 
ing money ? " — " ]S[o ; to obtain money is not the purpose of 
drawing a bill of exchange ; to obtain money is the purpose of 
discounting the bill." — - The drawing of bills of exchange is 
a conversion of commodities into a form of credit-money, just 
as the discounting of bills of exchange is the conversion of 
credit-money into other money, namely bank notes. At any 
rate Mr. Overstone admits here, that the purpose of discount- 
ing is to obtain money. , A while ago he said that discounting 
was a means, not of transforming capital from one form into 
another, but of obtaining additional capital. 

3742. " What is the great desire of the business world 
under the pressure of a panic, such as occurred according to 
your testimony in 1825, 1837 and 1839 ; do they want to se- 
cure possession of capital or of legal tender money ? " — " They 
want to obtain command of capital, in order to continue their 
business." — Their purpose is to obtain means of payment for 
due bills of exchange on themselves, on account of the prevail- 
ing lack of credit, so that they may not have to get rid of 
their commodities below price. If they have no capital at 
all themselves, then they receive with the means of payment 
at the same time capital, because they receive value without 
giving an equivalent. The desire to obtain money as such 
consists always in the wish to transform value from the form 
of commodities or creditor's claims into money. Hence also, 
aside from crisis, the great difference between the borrowing 



5o6 Capitalist Production. 

of capital and discount, the last being a mere transformation 
o"f money claims from one shape into another, or into real 
money. 

[I take the liberty, in my capacity of editor, to interpolate 
a few remarks here,] 

With Zl^orman as well as Loyd-Overstone the banker always 
figures as a man, who advances " capital " to others, and his 
customers appear as people, who demand " capital " from him. 
Thus Overstone says, that people have bills of exchange dis- 
counted through him, " because they wish to obtain capital " 
[3729], and that it is pleasant for such people to "obtain 
command of capital" at a "low rate of interest" [3730]. 
"Money is an instrument for obtaining capital" [3736], 
and during a panic the great desire of the business world is 
to "obtain command of capital" [3743]. All the confusion 
of Loyd and Overstone notwithstanding they reveal at least 
the fact that they call the thing, which the banker gives to 
his customer, capital, and that this is a thing formerly not 
in the possession of the customer, but advanced to him in ad- 
dition to the one already in his hands. 

The banker has become so well accustomed to figure as 
the distributor [through loans] of the social capital available 
in the form of money, that he considers every function, by 
which he hands out money, as loaning. All the money which 
he pays out appears to him as a loan. If the money is 
directly loaned, it is literally true. If it is invested in the dis- 
counting of bills, then it is in fact advanced by himself until 
the bill becomes due. In this way the conception grows upon 
him that he cannot make any payments without loaning 
money to somebody. And these are loans, not merely in the 
sense that every investment of money, which has for its object 
the taking of interest or profit, is economically considered an 
advance of money, which the owner of money in his caj)acity 
as a private individual makes to himself in his capacity as 
an entrepreneur. They are loans in the definite sense that 
the banker loans to his customer a sum of money, which con- 
stitutes an addition to the capital already held by him. 

It is this conception, which, transferred from the banker's 



Accmnulation of Money-Capital. 507 

office to political economy, has created the confusing contro- 
versy, whether the thing, which the banker loans to his cus- 
tomer in the shape of cash money, is capital or mere money, 
medium of circulation or currency. In order to decide tliis 
fundamentally simple controversy, we must place ourselves in 
the position of a customer of a bank. It depends what this 
customer wants and receives. 

If the bank allows to its customer a loan on his own private 
credit, without any security on his part, then the matter is 
clear. He certainly receives in that case an advance of a 
definite amount in addition to the capital so far invested by 
him. He receives this advance in the form of money; it is 
not merely money, but money-capital. 

If on the other hand, he receives an advance on depositing 
securities, etc., then this is money paid to him on condition 
that he pay it back, but it is not capital. For the securities 
also represent capital, and at that of a larger amount than the 
money advance upon them. The receipient of the advance 
receives less capital-value than he deposits as a security; 
hence the advance is not additional capital for him. He does 
not agree to this transaction, because he needs capital — for 
he has this in his securities — but because he needs money. 
Therefore we have in this case an advance of money, not of 
capital. 

If the loan is granted by discounting bills, then even the 
form of an advance disappears. The transaction is then 
purely one of buying and selling. The bill passes by endorse- 
ment into the possession of the bank, while the money passes 
into the possession of the customer. There is no question 
of any return payment on either side. If a customer buys 
with a bill of exchange or some similar instrument of credit 
cash money, it is no more an advance than it is if he buys 
cash money with other commodities, such as cotton, iron, com. 
Still less can this be called an advance of capital. Every 
purchase and sale between merchant and merchant transfers 
capital. But an advance of capital takes place only then, 
when a bill is a fraudulent one, which does not represent any 
commodities at all, and no banker will take such a bill, if he 



5o8 Capitalist Production. 

is aware of its nature. In tlie regular discounting business 
the customer of the bank does not, therefore, receive any ad- 
vance, either of capital or of money, but he receives money 
for sold commodities. 

The cases, in w^hich the customer demands capital from 
a bank and receives it are thus very plainly distinguished 
from those, in which he merely receives an advance of money 
or buys it from the bank. And since particularly Mr. Loyd- 
Overstone very rarely advanced any funds without collateral 
[he was the banker of my firm in Manchester] it is very 
evident that his beautiful descriptions of the great quantities 
of capital loaned by the generous bankers to the manufac- 
turers in need of capital are gross inventions. 

In chapter XXXII Marx says practically the same thing: 
" The demand for means of payment is a mere demand for 
convertibility into money, so far as merchants and producers 
have good securities to offer; it is a demand for money-capi- 
tal whenever there is no collateral, so that an advance of 
means of payment gives to them not only the form of money, 
but also the equivalent, whatever be its form, with which to 
make payment." — And again in chapter XXXIII : " Under 
a developed system of credit, when the money is concentrated 
in the hands of the bankers, it is they, at least nominally, who 
make advances of money. This advance does not refer to the 
money already in circulation. It is an advance made to 
circulation, not an advance of capital circulated by it." — 
Likewise Mr. Chapman, w^ho ought to know, corroborates this 
conception of the discounting business: B. C. 1857: "The 
banker has the bill, the banker has bought the hill." ^ Evid. 
Question 5139. 

We shall return to this subject in chapter XXVIII. — F. 
E.] 3744. " Will you kindly describe, what you really mean 
by the term capital ? " — Overstone : " Capital consists of va- 
rious commodities, by means of which trade is carried on ; 
there is a fixed capital and there is a circulating capital. 
Your ships, your docks, your wharves are fixed capital, your 
means of subsistence, your clothes, etc. are circulating capi- 
tal." 



Accumulation of Money-Capital. 509 

3Y45. " Has the drain of gold to foreign countries injuri- 
ous consequences for England ? " — " 'Not so long as one com- 
bines this term with a rational meaning." [Then follows 
the old Eicardian theory of money] ..." in the natu- 
ral condition of things the money of the world distributes 
itself among the various countries of the world in certain pro- 
portons; these proportions are such, that with such a dis- 
tribution [of money] the commerce between any one country 
on one side and all other countries on the other side is one of 
mere exchanges ; but there are disturbing influences, which af- 
fect this distribution from time to time^ and when these in- 
fluences arise, a portion of the money of a given country 
flows off to other countries." 3746. " You are now using 
the term ' money '. If I understood you correctly on 
former occasions, you called this a loss of capital." — " What 
was it that I called a loss of capital ? " — 3747. " The ex- 
port of gold." — " ISTo, I did not say that. If you treat gold 
as capital, then it is doubtless a loss of capital ; it is a giving 
away of a certain portion of precious metal, of which the 
world money consists." — 3748. " Did you not say 
before that a change in the rate of discount is a mere indica- 
tion of a change in the value of capital ? " — " Yes. " 
— 3749. " And that the rate of discount in general changes 
with the gold reserve in the Bank of England ? " — " Yes, 
but I have already stated that the fluctuations of the rate 
of interest, which arise from a change in the quantity of 
money " [so this is what he calls the quantity of gold actually 
existing] " are very significant. . . . " 

3750. "Then do you mean to say that a decrease of capi- 
tal has taken place, when a longer, but still temporary, raise 
of the discount above the ordinary quotation has taken 
place ? " — " A decrease in a certain sense of the word. The 
relation between capital and the demand for it has changed ; 
but it may be only through an increased demand, not through 
a decrease in the quantity of capital." — 

[But capital was for him precisely money or gold, and a 
little before that he had explained the rise of the rate of 



510 Capitalist Production. 

interest by a rise of the rate of profit, which was due to an ex- 
pansion, not to a contraction of business or capital.] 

3751. " What kind of capital is it that you have particu- 
larly in mind here ? " — " That depends entirely on what 
sort of a capital that every one needs. It is the capital 
which a nation has at its disposal in order to carry on its busi- 
ness, and if this business is doubled, a great increase must oc- 
cur in the demand for that capital with which it is to be 
carried on." [This shrewd banker doubles first the business 
and then the demand for capital with which it is to be 
doubled. He never sees anything else but his customer, who 
asks Mr. Loyd for more capital by which to double the vol- 
ume of his business.] — "Capital is like any other com- 
modity ;" [but according to Mr. Lloyd capital is nothing else 
but the totality of commodities] " it changes its price " [that 
is, the commodities change their price twice, one as com- 
modities and the second time as capital] " according to sup- 
ply and demand." 

3752. " The fluctuations in the rate of discount are in a 
general way connected with the fluctuations of the gold re- 
serve in the vaults of the bank. Is this the capital to which 
you refer ? " — " 'No." — 3753. " Can you give an example, 
showing when a great supply of capital was accumulated in 
the Bank of England and at the same time the rate of dis- 
count stood high ? " — " In the Bank of England it is not 
capital that is accumulated^ but money." — 3754. " You 
testified that the rate of interest depends on the quantity of 
capital ; will you kindly state, what kind of capital you mean, 
and whether you can quote an example, where a great supply 
of gold was held in the bank and at the same time the rate 
of interest was high?" — "It is very probable" [aha!] 
" that the accumulation of gold in a bank may coincide with 
a low rate of interest, because a period of low demand for 
capital " [namely money-capital ; the time to which reference 
is made here, 1844 and 1845, was a period of prosperity] 
" is a period, in which naturally the means or instrument, by 
which capital is commanded, can accumulate." — ■ 3755. 
" You think, then, that no connection exists between the rate 



Accumulation of Money-Capital. 511 

of discount and tlie quantity of gold in the bank vaults ? " — 
" A connection may exist, but it is not a connection on 
principle;" [but his Bank Act of 1844 made it precisely 
a principle of the Bank of England to regulate the rate of 
interest by the quantity of gold in its possession] " there may 
be a coincidence of time." — 3758. " Do you intend to say 
that the difficulty of the merchants in this country, during 
times of scarcity of money due to a high rate of interest con- 
sists of obtaining capital, and not in obtaining money ? " — 
" You are throwing together two things, which I do not bring 
together in this form; the difficulty consists in getting cap- 
ital, and it also consists in getting money. . . . The 
difficulty of obtaining money, and the difficulty of obtaining 
capital, is the same difficulty considered at two different 
stages of its development." — Here the fish is caught once 
more. The first difficulty is to discount a bill of ex- 
change, or to obtain a loan on security of commodities. 
It is the difficulty of converting capital, or a commercial 
equivalent for capital, into money. And this difficulty 
expresses itself, among other things, in a high rate of 
interest. But after the money has been obtained, in what 
does the second difficulty consist if it is merely a question 
of paying, has any one any difficulty in getting rid of his 
money? And if it is a question of buying, where has any 
one ever had any difficulty in times of crisis in buying any- 
thing? Supposing, for the sake of argument, that this 
should refer to the specific case of a dearth in corn, cotton, 
etc., this difficulty should become apparent only in the price 
of these commodities, not in that of money-capital, that is, 
not in the rate of interest; but the difficulty, so far as it 
refers to the price of commodities, is overcome by the fact 
that our man now has the money to buy them. 

3760. " But a higher rate of discount is an increased dif- 
ficulty of obtaining money, is it not ? " — " It is an increased 
difficulty of obtaining money, but it is not the money, the 
possession of which is essential ; it is only the form " [and 
this form brings profits into the pockets of the banker] " in 
which the increased difficulty of obtaining capital presents 



512 Capitalist Production. 

itself under the complicated relations of a civilised condi- 
tion." 

3763. Overstone's reply : " The banker is the middle 
man, who receives on one side deposits, and on the other side 
uses these deposits by entrusting them, in the form of capital, 
to the hands of persons, who etc." 

Here we have at last what lie calls capital. He converts 
money into capital by " entrusting " it, or, less euphemistic- 
ally, by loaning it out at interest. 

After Mr. Overstone has stated, that a change in the rate 
of discount is not essentially connected with a change in the 
quantity of gold reserve in the bank, or in the quantity of 
available money, but that there is at best only a coincidence 
in time, he repeats: 

3804. " If the money in the country is reduced by export, 
its value rises, and the Bank of England must adapt itself 
to this change in the value of money;" [that is, the value 
of money as capital, in other words, the rate of interest, for 
the value of money as money, compared with commodities, 
remains the same] " this is technically expressed by the 
words, that it raises the rate of interest." 

3819. " I never throw the two together." Meaning 
money and capital, for the simple reason, that he never dis- 
tinguishes them. 

3834. " The very large sum, which had to be paid out 
for the necessary subsistence of tlie country [for corn in 
1847] and which was, indeed, capital." 

3841. " The fluctuations in the rate of discount have 
doubtless a very close connection to the condition of the gold 
reserve [of the Bank of England], for the condition of the 
gold reserve is the indicator of the increase -or decrease of 
the quantity of money existing in a country ; and in propor- 
tion as the money in a country increases or decreases, the 
value of money falls or rises, and the bank rate of discount 
will adapt itself to that." — • Here, then, he admits what he 
denied once for all in ISTo. 3755 — 3842. " There is a close 
connection between the two." Meaning between the quantity 
of gold in the issue department and the reserve of notes in 



Accumulation of Money-Capital. 513 

tlie banking department. Here he explains the change in the 
rate of interest by the change in the quantity of money. But 
what he says is wrong. The reserve may decrease, because 
the circulating money in the country may increase. This is 
the case, when the public takes more notes and the metal re- 
serve does not decrease. But in that case the rate of interest 
rises, because then the banking capital of the Bank of Eng- 
land is limited by the Acts of 1844. But he dare not men- 
tion this, since this law provides, that these two departments 
shall not have anything in common. 

3859. " A high rate of profit will always create a great 
demand for capital; a great demand for capital will raise its 
value." — Here, we have at last 'fhe connection between a 
high rate of profit and a demand for capital, as Overstone 
conceives it. Now, a high rate of profit prevailed in 1844— 
45, for instance, in the cotton industry, because raw cotton 
was and remained cheap while the demand for cotton goods 
was strong. The value of capital [and according to a 
previous statement Overstone calls capital that which every 
one needs in his business], in the present case the value of 
raw cotton, was not increased for the manufacturer. Now 
the high rate of profit may have induced some cotton manu- 
facturer to take up money for the expansion of his business. 
Thereby the demand for money-capital rose, and nothing else. 

3889. " Gold may be money or not, just as paper may be 
a bank note or not." 

3896. " Do I understand you correctly, then, that you 
abandon the statement, which you applied in 1840, to the ef- 
fect that fluctuations in the circulating notes of the Bank of 
England should be governed by the fluctuations in the quan- 
tity of the gold reserve ? " — "I abandon it in so far. . . . 
that according to the present condition of our knowledge we 
must add to the circulating notes those other notes, which 
are deposited in the bank reserve of the Bank of England." 
— This is superlative. The arbitrary provision, that the 
bank may make out as many paper notes as it has gold in 
the treasury and 14 millions more, implies, of course, that 
its issue of notes fluctuates with the fluctuations of the gold 

2G _ 



514 Capitalist Production. 

reserve. But since " tlie present condition of our knowl- 
edge " shows clearly, that the mass of notes, which the bank 
can manufacture according to this (and which the issue de- 
partment transfers to the banking department), and which, 
circulating between the two departments of the Bank of Eng- 
land and fluctuate with the fluctuations of its gold reserve, 
does not determine the circulation of bank notes outside of 
the walls of the Bank of England, and this last circulation 
becomes a matter of indifference for the administration of the 
bank, and the circulation between the two departments of 
the bank, which shows its difference from the real circula- 
tion in the reserve, becomes alone essential. For the outside 
world this internah circulation is significant only, because the 
reserve indicates, how close the bank is getting to the legal 
maximum of its issue of notes, and how much the customers 
of the bank can still receive from the banking department. 

The following is a brilliant example of Overstone's bad 
faith : 

4243. " Does the quantity of capital fluctuate, in your 
own opinion, to such an extent from one month to another, 
that its value is changed thereby in the way that we have 
observed during the last years in the fluctuations of the rate 
of discount ? " — " The proportion between demand and sup- 
ply of capital may undoubtedly fluctuate even in short in- 
tervals. ... If France announces to-morrow, that it will 
take up a very large loan, it will undoubtedly cause at once 
a great change in the value of money, that is, the value of 
capital, in England." 

4245. " If France announces, that it will suddenly need 
30 millions worth of commodities for some purpose or other, 
a great demand will arise for capital, to use the more scien- 
tific and simpler expression." 

4246. " The capital, which France might want to buy 
with its loan, is one thing; the money, with which France 
buys this, is another thing; is it the money, which changes 
its value, or not ? " — " We are coming back to the old 
question, and that, I believe, is better suited for the study 



The Role of Credit. ' 5^5 

room of a scientist than for this committee room." — And 
with this he retires, but not into the study room.^^ 



CHAPTER XXVII. 

THE EOLE OF CREDIT IN CAPITALIST PRODUCTION. 

The general remarks, which the credit system so far 
elicited from us, were the following: 

I. Its necessary development, for the purpose of pro- 
curing tlie compensation of the rate of profit, or the move- 
ments of this compensation, upon which the entire capitalist 
production rests. 

II. Reduction of the cost of circulation. 

1) One of the principal expenses of the circulation is 
money itself, so far as its represents value itself. It is 
economized by credit in three ways. 

A. It is entirely eliminated in a large portion of the 
transactions. 

B. The circulation of the circulating medium is ac- 
celerated.^® This coincides partly with the statements to be 

^ Further remarks on Overstone's confusion of terms in the matter of capital 
will be found at the close of chapter XXXII. 

"' The average circulation of notes of the Bank of France was 106,538,000 francs 
in 1812 and 101,205,000 francs in 1818; while the circulation of money, the total 
amount of all receipts and payments, was 2,837,712,000 francs in 1813 and 
9,665,030,000 francs in 1818. The activity of the circulation in France in 1818 
compared to that of 1812 was, therefore, as 3 to 1. The great regulator of the 
velocity of the circulation is credit. . . • This explains, why a heavy pressure 
on the money-market generally coincides with a full circulation." (The Cur- 
rency Question Reviewed, etc., p. 165.) " Between September, 1833, and September, 
1843, nearly 300 banks were established in Great Britain, which issued their own 
notes; the consequence was a restriction of the circulation of notes by two and a 
half millions; it was 36,035,244 pounds sterling at the end of September, 1833, and 
33,518,544 pounds sterling at the end of September, 1843." (L. c, p. 53.) "The 
wonderful activity of the Scotch circulation enables it to transact with 100 pounds 
sterling the same amount of business, which requires 420 pounds sterling in 
England." (L. c, p. 55. This last statement refers only to the technical side 
of the operation.) 



5i6 Capitalist Production. 

made under 2). On one hand, the acceleration is technical; 
that is, with the same number and quantity of actual transfers 
of commodities for consumption, a smaller quantity of money 
or tokens of money performs the same service. This is con- 
nected with the technique of the banking business. On the 
other hand, credit accelerates the velocity of the metamor- 
phoses of commodities and thereby the velocity of the circula- 
tion of money. 

C. Eeplacement of gold money by paper. 

2) Acceleration, by credit, of the individual phases of 
circulation or of the metamorphoses of commodities, and 
with it an acceleration of the process of reproduction in 
general. (On the other hand credit permits keeping the acts 
of buying and selling farther apart and thus serves as a basis 
for speculation.) Contraction of the reserve funds, which 
may be studied from two sides; on one side as a reduction 
of the circulating medium, on the other as a reduction of that 
part of capital, which must always exist in the form of 
money. ^'^ 

III. Formation of stock companies. By means of these : 

1) An enormous expansion of the scale of production and 
enterprises, which were impossible for individual capitals. 
At the same time such enterprises as were formerly carried 
on by governments are socialised. 

2) Capital, which rests on a socialised mode of produc- 
tion and presupposes a social concentration of means of pro- 
duction and labor-powers, is here directly endowed with the 
form of social capital (a capital directly associated indi- 
viduals) as distinguished from private capital, and its enter- 
prises assume the form of social enterprises as distinguished 
from individual enterprises. It is the abolition of capital as 
private property within the boundaries of capitalist produc- 
tion itself. 

3) Transformation of the actually functioning capitalist 
into a mere manager, an administrator of other people's capi- 

8^ " Before the establishment of banks the amount of capital required for the 
function of the circulating medium was always greater than the actual circulation 
of commodities demanded." Economist, 1846, p. 838. 



The Role of Credit. 517 

tal, and of the owners of capital into mere owners, mere 
money-capitalists. Even if the dividends, which they receive, 
include the interest and profits of enterprise, that is, the 
total profit (for the salary of the manager is, or is supposed to 
be, a mere wage of a certain kind of skilled labor, the 
price of which is regulated in the labormarket, like that of 
any other labor), this total profit is henceforth received only 
in the form of interest, that is, in the form of a mere com- 
pensation of the ownership of capital, which is now separated 
friDm its function in the actual process of reproduction in 
the same way, in which this function, in the person of the 
manager, is separated from the ownership of capital. The 
profit now presents itself ( and not merely that portion of 
it, which derives its justification as interest from the profit 
of the borrower) as a mere appropriation of the surplus-labor 
of others, arising from the transformation of means of pro- 
duction into capital, that is, from its alienation from its 
actual producer, from its antagonism as another's property 
opposed to the individuals actually at work in production, 
from the manager down to the last day laborer. 

In the stock companies the function is separated from the 
ownership of capital, and labor, of course, is entirely sepa- 
rated from the ownership of means of production and of 
surplus-labor. This result of the highest development of 
capitalist production is a necessary transition to the reconver- 
sion of capital into the property of the producers, no longer 
as the private property of individual producers, but as the 
common property of associates, as social property outright. 
On the other hand it is a transition to the conversion of all 
functions in the process of reproduction, which still remain 
connected with capitalist private property, into mere func- 
tions of the associated producers, into social functions. 

Before we proceed any further, we call attention to 
the following fact, which is economically important: Since 
profit here assumes purely the form of interest, enterprises of 
this sort may still be successful, if they yield only interest, 
and this is one of the causes, which stem the fall of the rate 
of profit, since these enterprises, in which the constant capital 



■518 Capitalist Production. 

is so enormous compared to the variable, do not necessarily 
come under the regulation of the average rate of profit. 

[Since Marx wrote the above, new forms of industrial 
enterprises have developed, which represent the second and 
third degree of stock companies. The daily increasing speed, 
with which production may to-day be intensified on all fields 
of great industry, is offset on the other hand by the ever 
increasing slowness, with which the markets for these in- 
creased products expand. "What the great industries turn 
out in a few months, can scarcely be absorbed by the markets 
in years. Add to this the system of protective tariffs, by 
which every industrial country shuts itself off from all others, 
particularly from England, and which increases home pro- 
duction still more by artificial means. The results are a 
chronic overproduction, depressed prices, falling or disappear- 
ing profits; in short, the long cherished freedom of competi- 
tion has reached the end of its tether and is compelled to an- 
nounce its own palpable bankruptcy. This is shown by the 
fact, that the great captains of industry of a certain line meet 
for the joint regulation of production by means of a kartel. 
A committee determines the quantity to be produced by each 
establishment and distributes ultimately the incoming orders. 
In some cases even international kartels were formed tem- 
porarily, for instance, one uniting the English and German 
iron producers. But even this form of socialisation did not 
suffice. The antagonism of interests between the individual 
firms broke through the agreement quite frequently and re- 
stored competition. This led in some lines, where the scale 
of production permitted it, to the concentration of the entire 
production of this line in one great stock company under one 
joint management. In America this has been accomplished 
several times ; in Europe the greatest illustration is so far the 
United Alkali Trust, which has brought the entire Alkali 
production of the British into the hands of one single busi- 
ness firm. The former owners of the individual works, more 
than thirty, have received the tax value of their entire estab- 
lishment in shares of stock, totalling about 5 million pounds 
sterling, which represent the fixed capital of the trust. The 



The Role of Credit. 519 

technical management remains in the same hands, but the 
business management is centralised in the hands of the gen- 
eral management. The floating capital, amounting to about 
one million pounds, was offered to the public for subscription. 
The total capital is, therefore, 6 million pounds sterling. In 
this way competition in this line, which forms the basis of 
the entire chemical industry, has been replaced in England 
by monopoly, and the future expropriation of this line by the 
whole of society, the nation, has been well prepared. — F. E.] 

This is the abolition of the capitalist mode of production 
within capitalist production itself, a self-destructive contra- 
diction, which represents on its face a mere phase of transition 
to a new form of production. It manifests its contradictory 
nature by its effects. It establishes a monopoly in certain 
spheres and thereby challenges the interference of the state. 
It reproduces a new aristocracy of finance, a new sort of para- 
sites in the shape of promoters, speculators and merely 
nominal directors; a whole system of swindling and cheating 
by means of corporation juggling, stock jobbing, and stock 
speculation. It is private production without the control of 
private property. 

IV. Aside from the stock company business, which rep- 
resents an abolition of capitalist private industry on the basis 
of the capitalist system itself and destroys private industry in 
proportion as it expands and seizes new spheres of produc- 
tion, credit offers to the individual capitalist, or to him who 
is regarded as a capitalist, absolute command of the capital 
of others and the property of others, within certain limits, 
and thereby of the labor of others. ^^ A command of social 

^ See, for instance, in the Times the list of business failures of a critical year 
like 1857, and compare the private property of the bankrupts with the amount 
of their debts. " In truth the purchasing power of people, who have capital and 
credit, exceeds by far anything conceivable by those who have no practical ac- 
quaintance with speculative markets." (Tooke, Inquiry into the Currency Prin- 
ciple, p. 73.) " A man who has the reputation of having enough capital for his 
regular business, and who enjoys good credit in his line, if he has sanguine ideas 
concerning the rising constellation of the articles carried by him, and if he is lucky 
in the beginning and course of his speculation, may make purchases of a truly 
enormous extent compared to his capital " (Ibidem, p. 136). "The manufacturers, 
merchants, etc., all carry on transactions which exceed their capital by far . . . 
Capital is to-day rather the basis, on which a good credit is built up, than the 
limit of the transaction of any commercial business." {Economist, 1847, p. 838.) 



520 Capitalist Production. 

capital, not individual capital of his own gives him command 
of social labor. The capital itself, which a man really owns, 
or is supposed to own by public opinion, becomes purely a 
basis for the superstructure of credit. This is true par- 
ticularly of wholesale commerce, through whose hands the 
greatest portion of the social product passes. All standards 
of measurement, all excuses which are more or less justified 
under capitalist production, disappear here. What the spec- 
ulating wholesale merchant risks is social property, not his 
own. Equally stale becomes the phrase concerning the origin 
of capital from saving, for what he demands is precisely that 
others shall save for him. [In this way all France saved 
recently one and a half billion francs for the Panama Canal 
swindlers. In fact the entire Panama swindle is here cor- 
rectly described, fully twenty years before it happened. — 
F. E,] The other phrase of the abstention is slapped in the 
face by his luxury, which now becomes a means of credit by 
itself. Conceptions, which still have some meaning on a 
less developed stage of ca]3italist production, become quite 
meaningless here. Both success and failure lead now simul- 
taneously to a centralisation of capital, and thus to an expro- 
priation on the most enormous scale. This expropriation ex- 
tends here from the direct producers to the smaller and 
smallest capitalists themselves. It is fi'rst the point of de- 
parture of the capitalist mode of production; its complete 
accomplishment is the aim of this production. In the last 
instance it aims at the expropriation of all individuals from 
the means of production, which cease with the development 
of social production to be means of private production and 
products of private production, and which can henceforth be 
only means of production in the hands of associated producers, 
their social property, just as they are social products. How- 
ever, this expropriation appears under the capitalist system 
in a contradictory form, as an appropriation of social prop- 
erty by a few ; and credit gives to these few more and more 
the character of pure adventurers. Since property here exists 
in the form of shares of stock, its movements and transfer 
become purely a result of gambling at the stock exchange, 



The Role of Credit. 521 

where the little fish are swallowed by the sharks and the lambs 
by the wolves. In the stock companies the antagonism against 
the old form becomes apparent, in which social means of pro- 
duction are private property; but the conversion to the form 
of shares of stock still remains ensnared in the boundaries of 
capitalism; hence, instead of overcoming the antagonism be- 
tween the character of wealth as a social one and as private 
wealth, the stock companies merely develop it in a new form. 

The co-operative factories of the laborers themselves rep- 
resent within the old form the first beginnings of the new, 
although they naturally reproduce, and must reproduce, every- 
where in their actual organisation all the shortcomings of 
the prevailing system. But the antagonism between capital 
and labor is overcome within them, although only in the form 
of making the associated laborers their own capitalists, that 
is, enabling them to use the means of production for the em- 
ployment of their own labor. They show the way, in which 
a new mode of production may naturally grow out of an old 
one, when the development of the material forces of produc- 
tion and of the corresponding forms of social production has 
reached a certain stage. Without the factory system arising 
out of the capitalist mode of production the co-operative fac- 
tory could not develop, nor without the credit system arising 
out of the same mode of production. The credit system is 
not only the principal basis for the gradual transformation 
of capitalist private enterprises into capitalist stock com- 
panies, but also a means for the gradual extension of co- 
operative enterprises on a more or less natural scale. The 
capitalist stock companies as well as the co-operative fac- 
tories may be considered as forms of transition from the cap- 
italist mode of production to the associated one, with this 
distinction, that the antagonism is met negatively in the one, 
positively in the other. 

So far we have considered the development of the credit 
system, and the latent abolition of capitalist property implied 
by it, mainly with reference to industrial capital. In tlie fol- 
lowing chapters we shall consider credit with reference to 
interest-bearing capital as such, both the effect of interest 



522 Capitalist Production. 

on this capital and the form which it assumes thereby; and 
on this point we shall have to make a few more specific re- 
marks of economic significance. 

For the present we have this to say: 

The credit system appears as the main lever of overproduc- 
tion and overspeculation in commerce solely because the 
process of reproduction, which is elastic in its nature, is here 
forced to its extreme limits, and is so forced for the reason 
that a large part of the social capital is employed by people 
who do not own it and who push things with far less caution 
than the owner, who carefully weighs the possibilities of his 
private capital, which he handles himself. This simply dem- 
onstrates the fact, that the production of values by capital 
based on the antagonistic nature of the capitalist system per- 
mits an actual, free, development only up to a certain point, 
so that it constitutes an immanent fetter and barrier of pro- 
duction, which are continually overstepped by the credit sys- 
tem.^^ Hence the credit system accelerates the material 
development of the forces of production and the establish- 
ment of the world market. To bring these material founda- 
tions of the new mode of production to a certain degree of 
perfection, is the historical mission of the capitalist system 
of production. At the same time credit accelerates the violent 
eruptions of this antagonism, the crises^ and thereby the de- 
velopment of the elements of disintegration of the old mode 
of production. 

Two natures, then, are immanent in the credit system. 
On one side, it develops the incentive of capitalist production, 
the accumulation of wealth by the appropriation and ex- 
ploitation of the labor of others, to the purest and most 
colossal form of gambling and swindling, and reduces more 
and more the number of those, who exploit the social wealth. 
On the other side, it constitutes a transition to a new mode 
of production. It is this ambiguous nature, which endows 
the principal spokesmen of credit from Law to Isaac Pereire 
with the pleasant character of swindlers and prophets. 

«»Th. Chalmers. 



The Medium of Circulation. 523 



CHAPTER XXVIII. 

THE MEDIUM OF CIE.CULATIO]Sr (cUEKENCy) AND CAPITAX.. 

tooke's and fullarton's conception. 

The distinction between currency and capital, drawn by 
Tooke,^*^ Wilson, and others, which indiscriminately con- 
founds the differences between the medium of circulation as 
money, as money-capital, and as interest-bearing capital 
(moneyed capital in English parlance), refers to two things. 
The currency circulates on the one hand as coin (money), 
so far as it promotes the expenditure of revenue, in the trans- 
actions between the individual consumers and the retail mer- 
chants. In this category belong all merchants, who sell to the 
consumers, that is,, the individual consumers as distinguished 
from the productive consumers or producers. Here money cir- 
culates in the function of coin, although it continually replaces 

^° The business of bankers, setting aside the issue of promissory notes payable 
on demand, may be divided into two branches, corresponding with the distinction 
pointed out by Dr. (Adam) Smith of the transactions between dealers and dealers, 
and between dealers and consumers. One branch of the bankers' business is to 
collect capital from those who have no immediate employment for it, and to 
distribute or transfer it to those who have. The other branch is to receive de- 
posits of the incomes of their customers, and to pay out the amount, as it is 
wanted for expenditure by the latter in the objects of their consumption. . . . 
the former being a circulation of capital, the latter of currency." Tooke, Inquiry 
into the Currency Principle, p. 36. The former is "the concentration of capital 
on the one hand and the distribution of it on the other," the latter is " administer- 
ing the circulation for local purposes of the district." Ibidem, p. 37. The correct 
conception is far more approached in the following passage from Kinnear: "Money 
is used to accomplish two essentially different operations. As a medium of ex- 
change between dealer and dealer it is the instrument, by which transfers of 
capital are accomplished; that is, the exchange of a certain amount of capital in 
money for an equal amount of capital in commodities. But money expended in 
the payment of wages and in the purchase and sale between dealer and consumer 
is not capital, but revenue; that portion of the revenue of the community, which is 
used for daily expenditures. This money circulates continually in daily use, and 
it is this alone, which is strictly called currency. Advances of capital depend 
exclusively on the will of the bank or other capitalists, for there are always bor- 
rowers to be found; but the amount of currency depends on the needs of the 
community, within which the money circulates for the purpose of daily expendi- 
ture." (J. G. Kinnear, The Crisis and Currency. London, 1847.) 



524 Capitalist Production. 

capital. A certain portion of the money in a certain country is 
continually devoted to this function, although this portion con- 
sists of perpetually varying pieces of individual coin. On 
the other hand, so far as money promotes the transfer of cap^ 
ital, either as a means of purchase (means of circulation), 
or as a means of payment, it is capital. It is, therefore, 
neither its function as a means of purchase, nor that as a 
means of payment, which distinguishes it from coin, for it 
may act as a means of purchase also between dealer and dealer, 
so far as they buy on cash terms from one another, and it 
may serve as a means of payment also between dealer and 
consumer, so far as credit is given and the revenue consumed 
before it is paid. The difference, then, is in fact that between 
the money-form, of revenue and the money-form of capital, 
but not that between currency and capital, for a certain quan- 
tity of money circulates in the transactions between dealers 
as well as those between consumers and dealers. It is, there- 
fore, equally a currency (circulation) in both functions. In 
Tooke's conception, confusion is introduced into this question 
in various ways. 

1) By confounding the definite distinctions of the two 
functions ; 

2) By intermingling wath it the question of the quantity 
of money circulating together in both functions ; 

3) By intermingling with it the question of the relative 
proportions of the quantities of currency circulating in the 
two functions, and thus in the two spheres of the process of 
reproduction. 

I. Confounding the Definite Distinctions. 

Honey is said to be currency in the one form, and .capital 
in the other. To the extent that money serves in the one or 
the other function, be it for the realisation of revenue or the 
transfer of capital, it performs its duty in buying and selling 
or in paying, as a means of purchase or payment, and in the 
Avider meaning of the word as currency. The further pur- 
poses, to which it is devoted in the accounts of its spender or 
recipient, who may use it as capital or revenue, do not alter 



The Medium of Circulation. 525 

anything in this matter, and this is demonstrated by two 
facts. Although the kinds of money circulating in the two 
spheres are different, yet the same price of money, for in- 
stance a five pound note, passes from one sphere to the other 
and performs alternately both functions; this is inevitable 
for the simple reason, that the retail merchant can give to 
his capital the form of money which he receives from cus- 
tomers. It may be assumed, that the small change has its 
center of gravitation in the domain of retail trade ; the retail 
dealer needs it continually to give change and receives it back 
continually in the payments of his customers. But he also 
receives money, that is, coin in that metal, which serves as 
a standard of value, for instance, in England one pound 
coins, or even bank notes, particularly notes of small de- 
nominations, such as five and ten pound notes. These gold 
coins and notes, with whatever small change he has to spare, 
are deposited by the retail dealer every day, or every week, 
in his bank, and he pays for his purchases by drawing checks 
on his deposits. But the same gold coins and bank notes are 
continually withdrawn from the bank, indirectly or directly 
(for instance, small change by manufacturers for the payment 
of wages), by the entire public in its capacity as consumer, 
and flow continually back to the retail dealers, for whom they 
realise in this way a portion of their capital, and at the same 
time their revenue, again and again. This last circumstance 
is important, and it is wholly overlooked by Tooke. Only 
where money is expended as money-capital, in the beginning 
of the process of reproduction (Book II, Part I), does capital- 
value exist purely as such. For in the produced commodities 
there is contained not merely capital, but also surplus-value; 
they are not capital alone, but also newly produced capital, 
capital pregnant with the source of revenue. What the- re- 
tail dealer gives away for the money returning to him, his 
commodities, constitutes for him capital plus profit, capital 
plus revenue. 

Furthermore, the circulating small change, when returning 
to ^the retail dealer, rehabilitates for him the money-form 
of his capital. 



526 Capitalist Production. 

The difference between circulation as a circulation of rev- 
enue and a circulation of capital cannot, therefore, be pre- 
sented as a difference between currency and capital mthout 
creating confusion. This mode of expression is due in the 
case of Tooke to the fact, that he simply places himself in 
the position of a banker issuing his own bank notes. The 
amount of his notes, which is continually in the hands of the 
public and serves as currency (even if consisting of ever 
different notes) costs him nothing but paper and printing. 
They are circulating certificates of indebtedness made out 
in his own name (bills of exchange), but they bring him 
money and thus serve as a means of expanding his capital. 
But they differ from his capital, whether this be his own or 
borrowed capital. This implies for him a specific distinction 
between currency and capital, which, however, has nothing 
to do with the definite definition of terms as such, least of 
all with those made by Tooke in this case. 

The different terms denoting specific functions — whether 
it be the money form of revenue or of capital — ■ do not change 
anything in the primal character of money as a medium of 
circulation; it retains this character, no matter whether it 
performs the one function or the other. It is true, that 
money serves more as a medium of circulation in the strict 
meaning of the term (coin, means of purchase) in its char- 
acter as the money-form of revenue, on account of the in- 
coherency of the purchases and sales, and because the majority 
of the spenders of revenue, the laborers, can buy relatively 
little on credit, while in the transactions of the business world, 
where the medium of circulation constitutes the money-form 
of capital, money serves mainly as a means of payment, partly 
on account of the concentration, partly on account of the pre- 
vailing credit system. But the distinction between money as 
a means of payment and a means of purchase (currency) 
refers to money itself; it is not a distinction between money 
and capital. The distinction is not one between currency 
and capital, merely because more copper and silver circulates 
in the retail business, and more gold in wholesale business, 



The Medium- of Circulation. 5.27 

so that there is a difference between copper and silver on 
one side, and gold on the other. 

II. Introducing the Question of the Quantity of Money 

Ci7'culating Together in Both Functions. 

To the extent that money circulates, either as a means of 
purchase or as a means of payment, no matter in which one 
of the two spheres and independently of its function of real- 
ising revenue or capital, the quantity of its circulating mass 
is regulated by the laws developed previously in the discus- 
sion of the simple circulation of commodities. Book I, Chapter 

III, 2 b. The degree of the velocity of circulation, in other 
words, the number of repetitions of the same function as 
means of purchase and payment by the same pieces of money 
in a given period of time, the mass of simultaneous purchases 
and sales, or payments, the sum of the prices of the circulat- 
ing commodities, finally the balances of payments to be spared 
in the same period, determine in either case the mass of the 
circulating money, of currency. Whether the money so serv- 
ing represents capital or revenue for the paying or receiving 
party, is immaterial, and does not alter the matter in any 
way. Its mass is simply determined by its function as a 
medium of purchase and payment. 

III. Introduction of the Question of the Relative Propor- 
tions of the Quaniities of Currency Circulating in Both 
Functions and Thus in Both Spheres of the Process of 
Reproduction. 

Both spheres of circulation are connected internally, for on 
the one hand the mass of the revenues to be spent expresses 
the volume of consumption, and on the other hand the mag- 
nitude of the masses of capital circulating in production and 
commerce express the volume and velocity of the process of 
reproduction. IsTevertheless the same circumstances have a 
diiferent effect, working even in opposite directions, upon 
the quantities of the money circulating in both spheres or 
functions, or on the quantities of currency, as the English 



528 Capitalist Production. 

express it in banking parlance. And this gives a new justifica- 
tion for the absurd distinction of Tooke between capital and 
currency. The fact, that the gentlemen of the Currency 
Theory confound two different things, is by no means a good 
reason for making two different conceptions out of this con- 
fusion. 

In times of prosperity, great expansion, acceleration and in- 
tensity of the process of reproduction, the laborers are fully 
employed. Generally there is also a rise of wages which 
makes in a slight measure for their fall below the average 
level in the other periods of the commercial cycle. At the 
same time the revenue of the capitalists grow considerably. 
Consumption increases universally. The prices of commod- 
ities also rise regularly, at least in various essential lines 
of business. Consequently the quantity of the circulating 
money grows at least within certain limits, since the increas- 
ing velocity draws certain barriers around the quantity of the 
currency. Since that portion of the social revenue, which 
consists of wages, is originally advanced by the industrial 
capitalist in the form of variable capital, and always in the 
form of money, he requires more money in times of prosperity 
for his circulation. But we must not take this into account 
twice. We must not count it first as money required for the 
circulation of the variable capital, and a second time as money 
required for the circulation of the revenue of the laborers. 
The money paid to the laborers as wages is spent in retail 
trade and returns about once a week as a deposit of the retail 
dealers to the banks, after it has negotiated various inter- 
mediary deals in smaller cycles. In times of prosperity the 
reflux of money proceeds smoothly for the industrial capital- 
ists, and thus the need of money facilities does not increase 
for the reason that they have to pay more wages, but rather 
require more money for the circulation of their variable 
capital. 

The final result is, that the mass of currency required for 
the expenditure of revenue increases decidedly in periods of 
prosperity. 

As for the currency, which is necessary for the transfer 



The Medium of Circulation. 529 

of capital for the exclusive use of the capitalists, a period 
of brisk business is at the same time a period of most 
elastic and easy credit. The velocity of currency between 
capitalist and capitalist is regulated directly by credit, and 
the mass of the currency required, for the making of pay- 
ments and even for cash purchases decreases proportionately. 
It may increase absolutely, but it decreases under these cir- 
cumstances relatively, compared to the expansion of the proc- 
ess of reproduction. On the one hand greater amounts of 
payments are handled without the intervention of any money 
at all; on the other hand, owing to the gTeat vivacity of tLe 
process, the same quantities of money have a greater velocity, 
both as means of purchase and payment. The same quan- 
tity of money promotes the reflux of a greater number of 
individual capitals. 

On the whole, the currency of money in such periods ap- 
pears full, although its second portion (the transfer of capital) 
is at least relatively contracted, while its first portion (the 
expenditure of revenue) is absolutely expanded. 

The refluxes express the reconversion of commodity-capital 
into money, M — C — M', as we have seen in the discussion 
of the process of reproduction in Volume II, Part I. Credit 
renders the reflux in the form of money independent of the 
time of actual reflux, both for the industrial capitalist and the 
merchant. Both of them sell on credit; their commodities 
are gotten rid of, before they resume for them the form of 
money by returning them really in this form. On the other 
hand they buy on credit, and in this way the value of their 
commodities is reconverted either into productive capital or 
commodity-capital even before this value has been transformed 
into real money, before the price of commodities is due and 
paid for. In such periods of prosperity the reflux passes off 
smoothly and easily. The retail dealer pays the wholesale 
dealer in collateral, the wholesaler pays the manufacturer in 
the same way, the manufacturer in like manner the importer 
of the raw material, and so forth. The appearance of rapid 
and more secure turn-overs maintains itself always for a 
certain period after they are past in reality, since the turn- 

8H 



530 Capitalist Production. 

overs of credit take the place of the real ones as soon as credit 
is well under way. The banks begin to scent danger, as soon 
as their customers deposit more bills of exchange than money. 
See the above testimony of the Liverpool bank director. 

On a previous occasion I have remarked : " In periods 
of prevailing credit, the rapidity of circulation of money grows 
faster than the prices of commodities, while in times of de- 
clining credit the prices of commodities fall slower than the 
rapidity of circulation." (Critique of Political Economy, 
1859, p. 135-136.) 

In a period of crisis the condition is reversed. Circulation 
'No. I contracts, prices fall, likewise wages of labor; the num- 
ber of employed laborers is reduced, the mass of transactions 
decreases. On the other hand, the need of accommodation in 
the matter of money increases in circulation No. II in pro- 
portion as credit decreases. We shall return to this point 
immediately. 

There is no doubt that, with the decrease of credit which 
goes with the clogging of the process of reproduction, the 
mass of circulation No. I required for the expenditure of 
revenue is contracted, while that of No. II required for the 
transfer of capital is expanded. But it remains to be an- 
alysed, to what extent this statement coincides with the fol- 
lowing maintained by Tullarton and others : " A demand for 
capital on loan and a demand for additional circulation are 
quite distinct things, and not often found associated." (Ful- 
larton, 1. c. p. 82, title of chapter 5.) ^^ 

^^ " It is a great error, indeed, to imagine that the demand for pecuniary accom- 
modation (i.e. for the loan of capital) is identical with a demand for additional 
means of circulation, or even that the two are frequently associated. Each demand 
originates in circumstances peculiarly affecting itself, and very distinct from one 
another. It is when everything looks prosperous, when wages are high, prices on 
the rise, and factories busy, that an additional supply of currency is usually re- 
quired to perform the additional functions inseparable from the necessity of mak- 
ing larger and more numerous payments; whereas it is chiefly in a more ad- 
vanced stage of the commercial cycle, when difficulties begin to present themselves, 
when markets are overstocked, and returns delayed, that interest rises, and a 
pressure comes upon the Bank for advances of capital. It is true that there is 
no medium through which the Bank is accustomed to advance capital except that of 
promissory notes; and that, to refuse the notes, therefore, is to refuse the ac- 
commodation. But the accommodation once granted, everything adjusts itself 
in conformity with the necessities of the market; the loan remains, and the cur- 
rency, if not wanted, finds its way back to the issuer. Accordingly, a very slight 



The Medhnn of Circulation. 531 

In the first place it is evident, that in the first of the two 
cases mentioned above, dnring times of prosperity, when the 
mass of the circulating medium increases, the demand for 
it must also increase. But it is likewise evident, that a manu- 
facturer, who draws more or less of his deposit out of a bank 
in gold or banknotes, because he has more capital to expand 
in the form of money, does not increase his demand for cap- 
ital, but merely his demand for this particular form, in which 
his capital is expended. The demand refers only to the tech- 
nical form, in which his capital is thrown into circulation. 
It is well known that a different development of the credit 
system implies for the same variable capital, or the same 

examination of the Parliamentary Returns may convince any one, that the securi- 
ties in the hand of the Bank of England fluctuate more frequently in an opposite 
direction to its circulation than in concert with it, and the example, therefore, of 
that great establishment furnishes no exception to the doctrine so strongly pressed 
by the country bankers, to the effect that no bank can enlarge its circulation, 
if that circulation be already adequate to the purposes to which a banknote cur- 
rency is commonly applied; but that every addition to its advances, after that 
limit is passed, must be made from its capital, and supplied by the sale of some 
of its securities in reserve, or by abstinence from further investment of such 
securities. The table compiled from the Parliamentary Returns for the interval 
between 1833 and 1840, to which I have referred in a preceding page, furnishes 
continued examples of this truth; but two of these are so remarkable that it will 
be quite unnecessary for me to go beyond them. On the third of January, 1837, 
when the resources of the Bank were strained to the uttermost to sustain credit 
and meet the difficulties of the money-market, we find its advances on loan and 
discount carried to the enormous sum of 17,022,000 pounds sterling, an amount 
scarcely known since the war, and almost equal to the entire aggregate issues 
which, in the meanwhile, remain unmoved at so low a point as 17,076,000 pounds 
sterling! On the other hand, we have, on the fourth of June, 1833, a circula- 
tion of 18,892,000 pounds sterling, with a return of private securities in hand, 
nearly, if not the very lowest on record for the last half-century, amounting to no 
more than 973,000 pounds sterling! " (Fullarton, 1. c., pages 97 and 98.) That 
a demand for pecuniary accommodation need not be identical by any means with 
a demand for gold (what Wilson, Tooke and others call capital) may be seen by 
the following testimony of Mr. Weguelin, Governor of the Bank of England) : 
" The discounting of bills to this amount " (one million per day for three succes- 
sive days) "would not reduce the reserve" (of banknotes), unless the public 
should demand a greater amount of active circulation. The notes issued in the 
discounting of bills would flow back by way of banks and by means of deposits. 
Unless such transactions have for their purpose the export of gold, or unless a 
panic reigns in the inland market, of such character as to cause the public 
to hold on to the notes instead of depositing them in the banks, the reserve would 
not be touched by such tremendous transactions. " The Bank can discount one 
and a half millions daily, and this takes place continually, without touching its 
reserve in the least. The notes come back as deposits, and the only change that 
takes place is the mere transfer from one account to the other." (.Report on 
Bank Acts, 1857.) Evidence No. 241,500. The notes serve here merely as 
means of transferring credit accounts. 



53^ Capitalist Production. 

quantity of wages, a greater mass of means of circulation 
(currency) in one country than in another, for instance, more 
in England than in Scotland, more in Germany than in Eng- 
land. In like manner the same capital invested in agricul- 
ture, in the process of reproduction, requires different quan- 
tities of money in different seasons for the performance of its 
function. 

But the contrast drawn by Fullarton is not correct. It is 
by no means the strong demand for loans, as he says, which 
distinguishes the period of depression from that of prosperity, 
but the ease with which this demand is satisfied in periods of 
prosperity, and the difficulties which it meets after a depres- 
sion has become a fact. It is precisely the enormous develop- 
ment of the credit system during a period of prosperity, hence 
also the enormous development of the demand for loan capital 
and the readiness with which the supply meets it in such 
periods, which brings about a shortage of credit during the 
period of depression. It is not, therefore, the difference in 
the size of the demand for loans which characterises both 
periods. 

As we have remarked previously, both periods are primarily 
distinguished by the fact that in periods of prosperity the 
demand for currency between consumers and dealers pre- 
dominates, and in periods of depression that for currency 
between capitalists. In a period of depression the former 
decreases, the latter increases. 

What appears as the essential mark to Eullarton and others 
is the phenomenon, that in such periods, in which the secur- 
ities in the hand of the Bank of England are on the increase, 
its circulation of notes is decreasing, and vice versa. Now 
the level of the securities expresses the volume of the pe- 
cuniary accommodation, the volume of the discounted bills of 
exchange and of the advances on marketable collateral. Thus 
Fullarton says in the above passage (footnote 91) that the 
securities in the hands of the Bank of England vary generally 
in the opposite direction from its circulation of banknotes, 
and this corroborates the doctrine long held by private banks 
to the effect that no bank can increase its issue of banknotes 



The Medium of Circulation. 533 

beyond a certain point determined bj the needs of tbe public; 
but if a bank wants to make advances beyond this limit, it 
must take them out of its capital, that is, it must either realise 
on securities or utilise deposits which it would otherwise have 
invested in securities. 

This reveals at the same time what FuUarton means by 
capital. What does capital signify here ? It means that the 
bank can no longer make advances with its own banknotes, 
promissory notes that cost it nothing, of course. But what 
does it make payments with in that case ? With the sums 
realised by the sale of securities in reserve, that is, govern- 
ment bonds, stocks, and other interest-bearing papers. And 
what is this money that it gets in return for the sale of such 
papers ? Gold or banknotes, so far as the last named are 
legal tender, such as those of the Bank of England. What 
the bank advances, is under all circumstances money. This 
money now constitutes a part of its capital. This is evident 
in the case that it advances gold. If it advances notes, then 
these notes represent capital, because it has given up some ac- 
tual value, interest-bearing papers, for them. In the case of 
private banks the notes secured by them through the sale of 
securities cannot be anything else, in the main, but notes of 
the Bank of England or their own notes, since others would 
hardly be taken in payment for securities. If it is the Bank 
of England itself, its own notes, which it receives in return, 
cost it capital, that is, interest-bearing papers. By this 
means it withdraws its own notes from the circulation. If it 
reissues these notes, or issues new 'ones in their stead to the 
same amount, they represent capital. And they do so, 
equally well, when such notes are used for advances to cap- 
italists, or when they are used later on for investment in se- 
curities, as soon as the demand for such pecuniary accommo- 
dation decreases. In all these cases the term capital is em- 
ployed only from the banker's point of view, and it means 
that the banker is compelled to loan more than his mere 
credit. 

It is well known that the Bank of England makes all its 
advances in its own notes. Now, if the bank note circula- 



534 Capitalist Production. 

tion of this Bank decreases nevertheless in proportion as the 
discounted bills of exchange and collateral in its hands, and 
thus its advances, increase — what becomes of the notes 
thrown into circulation by it, how do they return to the 
Bank ? 

If the demand for money accommodation arises from an 
unfavorable national balance of trade and implies an export 
of gold, the matter is very clear. The bills of exchange are 
discounted in banknotes. The banknotes are exchanged by 
the bank itself, in its issue department, which issues gold for 
them, and this gold is exported. It is as though it were to pay 
out gold directly, without the intervention of notes, on dis- 
counting the bills. Such an increased demand, which may 
amount to from seven to ten million pounds sterling, natur- 
ally does not add a single five-pound note to the inland circu- 
lation of the country. ISlow, if it is said, that the Bank of 
England advances capital in this case, but not currency, it 
may mean two things. In the first place it may mean, that 
the bank does not advance credit, but actual values, a part 
of its own capital, or of capital deposited with it. In the 
second place it may mean that it does not advance money for 
inland, but for international circulation. It advances world 
money, and money for this purpose must always assume the 
form of a hoard in its metallic body. In this shape money 
does not merely represent the form of value, but value it- 
self, whose money-form it is. Although this gold represents 
capital, both for the bank and the exporting money dealer, 
both financial and commercial capital, yet the demand for 
it does not come as a demand for capital, but as a demand for 
the absolute form of money-capital. This demand arises pre- 
cisely at the moment, when the foreign markets are over- 
crowded with unsalable English commodity-capital. What 
is wanted, then, is capital, but not in its capacity as capital. 
What is wanted is capital in the shape of money j in the shape 
in which money serves as international world money; and 
this is its original form of precious metal. The exports of 
gold are not, as Fullarton, Tooke, etc., claim, a mere question 
of capital. They are a question of money, even if this be 



The Medium of Circulation. 535 

money in one specific function. The fact that it is not a 
question of inland currency, as the advocates of the Currency 
Theory maintain, does not prove, as FuUarton and others 
think, that it is a question of mere capital. It is a question 
of money in the form in v^hich money is an international 
means of payment. " Whether that capital " (that is, the 
purchase price for the one million quarters of foreign wheat 
required after a crop failure in the home country) " is trans- 
mitted in merchandise or in specie, is a point which in no 
way affects the nature of the transaction," (Fullarton, 1. c, 
p. 131) but affects essentially the question, whether an ex- 
port of gold takes place or not. Capital is transferred in the 
form of precious metals, because it either cannot be trans- 
ferred at all in the shape of commodities, or only at a great 
loss. The fear, which the modern banking system has of gold 
exports, exceeds anything ever dreamt by the monetary sys- 
tem, which considered precious metals as the only true 
wealth. Take, for instance, the following cross-examination 
of the Governor of the Bank of England, Morris, before the 
Parliamentary Committee on the crisis of 1847-48 : Ques- 
tion 3846. " When I speak of the depreciation of stocks 
and fixed capital, is it not known to you that all capital in- 
vested in papers and products of all kinds was depreciated in 
the same way, that raw materials, cotton, silk, wool, were 
sent to the continent at the same cut prices, and that sugar, 
coffee and tea were auctioned off in forced sales." — " It was 
inevitable that the nation should make considerable sacri- 
fices, in order to counteract the drain of gold caused by the 
enormous imports of means of subsistence," — 3848. " Don't 
you believe that it would have been better to touch the eight 
million pounds sterling stored in the vaults of the bank, in- 
stead of trying to recover the gold with such sacrifices ? " 
— " I do not believe that." — It is gold which here stands for 
the only true wealth, 

Fullarton quotes the discovery of Tooke, that " with only 
one or two exceptions, and those admitting of satisfactory 
explanation, every remarkable fall of the exchange, followed 
by a drain of gold, that has occurred during the last half 



536 Capitalist Production. 

century, lias been coincident throughout with a comparatively 
low state of the circulating medium, and vice versa." (Ful- 
larton, p. 121). This discovery proves that such drains of 
gold occur generally after a period of excitement and spec- 
ulation, as " a signal of a collapse already commenced 
an indication of overstocked markets, of a cessation 
of the foreign demand for our productions, of delayed re- 
turns, and, as the necessary sequel of all these, of commercial 
discredit, manufactories shut up, artisans starving, and a gen- 
eral stagTiation of industry and enterprise." (P. 129.) 
This is at the same time the best rebuttal of the claim of the 
advocates of the Currency Theory, that a full circulation 
drives out bullion and a low circulation attracts it. On the 
other hand, while the Bank of England generally carries a 
strong gold resen^e during a period of prosperity, this hoard 
is generally formed during the spiritless and stagnating 
period, which follows after a storm. 

All this wisdom concerning the drains of gold, then, 
amounts to saying that the demand for iniemational media 
of circulation and payment differs from the demand for na- 
tional media of circulation and payment (and this implies 
the self-evident fact that " the existence of a drain does not 
necessarily imply any diminution of the internal demand for 
circulation," as Fullarton says on page 112 of his work) ; 
and that the sending abroad of precious metals and their 
throwing into international circulation is not identical with 
the throwing of notes or specie into the internal circulation. 
For the rest I have shown on a previous occasion, that the 
movements of a hoard in the shape of a reserve fund for in- 
ternational payments has nothing to do as such with the 
movements of money as a medium of circulation. It is tnie 
that the question is complicated by the fact that the different 
functions of a hoard, which I have developed from the na- 
ture of money, are here placed upon the shoulders of one sole 
resen^e fund, that is, the function of money as a reserve fund 
for payiuents of due bills in the interior business ; the func- 
tion of a reserve fund of currency; finally, the function of 
a reserA'e fund of world money. It follov/s from this that 



The Medium of Circulation. 537 

under certain circumstances a drain of gold from the Bank 
to the internal market may be combined with a like drain to 
the international market. The question is further complicated 
by the fact that this reserve fund has been loaded with the 
additional function of serving as a fund for guaranteeing the 
convertibility of bank notes in countries, in which the credit 
system and credit money are developed. And on top of -all 
this comes the concentration of the national reserve fund in 
one single central bank, and, secondly, its reduction to the 
smallest possible minimum. This explains Fullarton's plaint 
(p. 143) : " One cannot contemplate the perfect silence and 
facility with which variations of the exchange usually pass 
off in continental countries, compared with the state of 
feverish disquiet and alarm always produced in England 
whenever the treasure in the bank seems to be at all approach- 
ing to exhaustion, without being struck with the great ad- 
vantage in this respect which a metallic currency possesses." 

However, if we leave aside the question of the drain of 
gold, how can a bank issuing notes, like the Bank of England, 
increase the amount of the money accommodation granted 
by it without increasing its issue of bank notes ? 

So far as the bank itself is concerned, all the notes outside 
of its walls, whether they circulate or rest in private treas- 
ures, are in circulation, that is, not held in its own posses- 
sion. Hence, if the bank extends its discounting and lom- 
barding business, its advances on securities, all the bank notes 
issued for that purpose must flow back to it, for otherwise 
they would increase the volume of circulation, a thing which 
is not supposed to happen. This return of notes may take 
place in two ways. 

Eirst: The bank pays to A notes for securities; A pays 
with these notes for bills of exchange due to B, and B de- 
posits these notes once more in this bank. This closes the 
circulation of these notes, but the loan remains. (" The loan 
remains, and the currency, if not wanted, finds its way back 
to the issuer." Eullarton, p. 9Y.) The notes, which the 
bank loaned to A, have now returned to it; but it still re- 
mains the creditor of A, or whoever may have been drawn 



538 Capitalist Production. 

upon by A in discounting his bills, and it remains the debtor 
of B for the amount of values expressed in these notes, and 
B thus has a claim upon a corresponding portion of the cap- 
ital of the bank. 

Secondly: A pays to B, and B himself, or C who re- 
ceives them from B, pays with these notes bills due to the 
bank, directly or indirectly. In that case- the bank is paid 
in its own notes. This concludes the transaction (excepting 
the return of tliis payment by A to the bank). 

In what respect, now, shall the loan of the bank to A be 
regarded as a loan of capital, or as a loan of mere cur- 
rency ? ®^ 

[This depends on the nature of the loan itself. Three 
cases must be distinguished. 

First Case. — A receives from the bank the amounts loaned 
on his own personal credit, without giving any security for 
them. In this case he does not merely receive means of pay- 
ment, but also without a doubt some, new capital, which he 
may invest and employ as an additional capital in his busi- 
ness until the day of settlement. 

Second Case. — A has given to the bank securities, national 
bonds, or stocks as collateral, and received for them, say, two- 
thirds of their value in the shape of a cash loan. In this 
case he has received means of payment needed by him, but 
no additional capital, for he entrusted to the bank a larger 
capital-value than he received from it. But this larger cap- 
ital-value was, on the one hand, unavailable for the momen- 
tary needs of A, because it was invested as interest-bearing 
capital in a certain form and could not serve as means of pay- 
ment; on the other hand, A had reasons of his own for not 
wanting to convert this capital-value directly into means of 
payment by selling it. His securities served, among other 
■ ends, as a reserve capital, and to that end he set them in mo- 
tion. The transaction between A and the bank, therefore, 
consists in a mutual transfer of capital, but in such a way, 
that A does not receive any additional capital (on the con- 

°" The passage following here is unintelligible in the original in this connection, 
and it has been worked over by the editor and inclosed in brackets. In another 
connection this point has already been touched upon in chapter XXVI. — F. E. 



The Medium of Circulation. 539 

trary, less capital!) although he receives means of payment 
which he needs. For the bank, on the other hand, this trans- 
action constitutes a temporary fixation of money-capital in 
the form of a loan, a conversion of money-capital from one 
form into another, and this conversion is precisely the essen- 
tial function of the banking business. 

Third Case. — A has had a bill of exchange discounted by 
the bank, and received its value in cash after the deduction 
of the discount. In this case he has sold to the bank a money- 
capital which does not represent ready cash for the same 
amount in the shape of ready cash. He has sold his run- 
ning bill for cash money. The bill is now the property of 
the bank. It does not alter the matter that the last endorser 
of the bill, A, is responsible to the baijk for it in default of 
payment. He shares this responsibility with the other en- 
dorsers and with the first writer of the bill, all of whom are 
responsible to him. In this case, then, we have not any loan 
to deal with, but only an ordinary sale and purchase. For 
this reason A has not to make any return payments to the 
bank. It covers itself by cashing the bill when it becomes 
due. Here, also, a transfer of capital has taken place be- 
tween A and the bank, in exactly the same way, which holds 
good in the sale and purchase of any other commodity, and for 
this very reason A did not receive any additional capital. 
What he needed and received were means of paytuent, and he 
received them by having the bank convert one form of his 
money-capital, his bill, into another, money. 

It is only the first case, in which there can be any question 
of a real loan of capital; in the second and third cases the 
matter can be so regarded only in the sense that every invest- 
ment of capital implies an advance of capital. In this sense 
the bank advances capital to A ; but for A it is money-capital 
at best in the sense that it is a portion of his capital in gen- 
eral. And he does not want and use it as a capital specific- 
ally. It is specifically a means of payment for him. Other- 
wise every ordinary sale of commodities, by which means of 
payment are secured, might be considered as a loan received. 
— F. E.] 



540 Capitalist Production. 

In the case of private banks issuing notes we have this dif- 
ference: If its notes remain neither in the local circulation, 
nor return to it in the form of deposits, or in payment for 
due bills of exchange, then these notes fall into the hands of 
people, who compel the private bank to cash these notes in 
gold or in notes of the Bank of England. In that event its 
loan represents indeed an advance of notes of the Bank of 
England, or, what amounts to the same thing for the private 
bank, of gold, in other words, of a portion of its banking cap- 
ital. The same holds good in the case that the Bank of Eng- 
land itself, or some other bank, which has a fixed legal maxi- 
mum for its issue of notes, must sell securities for the pur- 
pose of withdrawing its own notes from circulation and giving 
them out once more in the shape of loans ; in that case the 
bank's own notes represent a portion of its mobilised banking 
capital. 

Even if the circulation were purely metallic, it would be 
possible, first, that the drain of gold [Marx evidently refers 
here to a drain of gold that would, at least partially, go to 
foreign countries. — ^E. E.] might empty the treasury, while, 
secondly, its loans on securities might grow considerably, but 
flow back to it in the form of deposits, or of payments on due 
bills of exchange (since the gold is principally demanded from 
the bank for the payment of balances in the settlement of 
previous transactions) ; so that, on one side, the total treasure 
of the bank would be decreasing with an increase of securities 
in its hands, while it would be holding the same amount, 
which it possessed formerly as owner, in the capacity of debtor 
of its customers, who made deposits, and the total quantity 
of currency would be decreasing. 

Our assumption so far has been, that the loans are made in 
notes, so that they carry with them a momentary, but immedi- 
ately disappearing, increase of the issue of notes. But this 
is not necessary. Instead of a paper note, the bank may open 
a credit account for A, in which case this A, a debtor of the 
bank, appears in the role of an imaginary depositor. He sat- 
isfies his creditors with checks on the bank, and the recipient 
of these checks passes them on to his own banker, who ex- 



The Medium of Circulation. 54 ^ 

changes them for the cheeks running against him in the clear- 
ing house. In this case no intervention of notes takes place 
at all, and the entire transaction is confined to the fact that 
the bank collects its own debt in a check drawn on itself, since 
its actual recompense consists in its claim on A. In this case 
the bank has loaned to A a portion of its own banking capital, 
its own credit to him. 

To the extent that this demand for pecuniary accommoda- 
tion is a demand for capital, it is so only for money-capital. 
It is capital only from the point of view of the banker, namely 
gold (in the case of gold exports to foreign countries) or notes 
of the ISTational Bank, which a private bank can obtain only 
by purchase against securities, and which, therefore, repre- 
sent capital for it. Or, again, it is a case of interest-bearing 
papers, government bonds, stocks, etc., which must be sold in 
order to obtain gold or banknotes. Such papers, however, if 
they are government bonds, are capital only for the buyer^ 
for whom their purchase price represents a capital invested in 
them. By themselves they are not capital, but merely claims 
on loans. If they are mortgages, they are mere claims on 
future ground rent. And if they are shares of stock, they 
are mere titles of ownership, which entitle the holder to a 
share in future surplus-values. All these things are no real 
capital, they form no constituent parts of capital, nor are they 
values in themselves. By similar transactions money belong- 
ing to the bank may be transformed into deposits, so that the 
bank, instead of being the oAvner of- this money, owes it to 
some customer and holds it under a different title of owner- 
ship. While this is important as a phenomenon for the bank, 
yet it does not alter anything in the mass of capital existing 
in a certain country, or even of money-capital. Capital 
stands here only for money-capital, and if it is not available 
in the actual form of money, it stands for a mere title on cap- 
ital. This is a very important fact, since a scarcity of, and 
urgent demand for, hanhing capital is confounded with a de- 
crease of actual capital, which is in such cases rather abun- 
dant in the form of means of production and products and 
swamps the markets. 



542 Capitalist Production. 

It is, therefore, easy to explain, how it is that the raass of 
securities received by a bank as collateral increases, so that 
the growing demand for pecuniary accommodation can be sat- 
isfied by the bank, while the total mass of currency remains 
the same or decreases. This total mass is held in check dur- 
ing such periods of money stringency in two ways: 1) By a 
drain of gold; 2) by a demand for money in its capacity of 
a mere means of payment, w^hen the issued bank notes re- 
turn immediately, or when the transactions pass off without 
the intervention of notes by means of book credit; the pay- 
ments are thus made wholly by a transaction of credit, and 
the settlement of these payments was the only purpose of this 
transaction. It is a peculiarity of money, when it ser^'CS 
merely to square balances of payments (and in times of 
crises loans are taken up for the purpose of paying, not of 
buying; for the purpose of winding up previous transactions, 
not of beginning new ones), that its circulation is but small, 
even where balances are not squared by mere operations of 
credit, without any intervention of money, so that, when 
there is a heavy demand for pecuniary accommodation, an 
enormous quantity of such transactions can 'take place with- 
out expanding the circulation. 'But the mere fact, that the 
circulation of the Bank of England remains staMe or de-. 
creases simultaneously with a heavy satisfaction of money-ac- 
commodation on its part, does not prove without further cere- 
mony, as Fullarton, Tooke and others assume (owing to their 
mistake to the effect that pecuniary accommodation is iden- 
tical with taking up capital on loan as additional capital), 
that the circulation of money (of banknotes) in its function 
as a means of payment does not increase and extend. While 
the circulation of notes as means of purchase is decreasing in 
periods of business depression, when such a heavy accommo- 
dation is necessary, their circulation as means of payment 
may increase, and the aggregate amount of the circulation, the 
sum of the notes functioning as means of purchase and pay- 
ment, may remain stable or may even decrease. The cur- 
rency in its capacity as a means of payment, of banknotes im- 



The Medium of Circulation. 543 

mediately returning to the bank issuing them, is not a cur- 
rency in the eyes of those economists. 

If the circulation as a means of payment were to increas(i 
at a higher rate than it decreases as a means of purchase, the 
aggregate currency would increase, although the money serv- 
ing in the capacity of a means of purchase would have de- 
creased considerably in quantity. And this actually happens 
in periods of crisis, when credit collapses completely, so that 
commodities and securities are unsalable and bills of exchange 
cannot be discounted, and nothing goes any more but cash 
money. Since Fullarton and others do not understand, that 
the circulation of notes as means of payment is the character- 
istic mark of such periods of money stringency, they treat 
this phenomenon as accidental. " With respect again to those 
examples of eager competition for the possession of banknotes, 
which characterise seasons of panic and which may sometimes, 
as at the close of 1825, lead to a sudden, though only tem- 
porary, enlargement of the issues, even while the efflux of 
bullion is still going, these, I apprehend, are not to be re- 
garded as among the natural or necessary concomitants of a 
low exchange; the demand in such cases is not for circula- 
tion " (he should say circulation as a means of purchase) 
" but for hoarding, a demand on the part of alarmed bankers 
and capitalists which arises generally in the last act of the 
crisis " (that is, for a reserve of means of payment) " after 
a long continuation of the drain, and is the precursor of its 
termination." (Fullarton, p. 130.) 

In the discussion of money as a means of payment (Vol- 
ume I, chapter III, 3 b) we have already explained, in what 
manner, when the chain of payments is suddenly interrupted, 
money turns from its ideal form into a material and at the 
same time absolute form of value as compared to the com- 
modities. This was illustrated by some examples (footnotes 
on pages 156 and 157). This interruption itself is partly 
an effect, partly a cause of the insecurity of credit and of the 
circumstances accompanying it, such as overcrowding of mar- 
kets, depreciation of commodities, interruption of production, 
etc. 



544 Capitalist Production. 

But it is evident, that Fullarton transforms the difference 
between money as a means of purchase and money as a means 
of payment into the mistaken conception of a difference be- 
tween currency and capital. This is due to the narrow- 
minded banker's conception of circulation. 

It might be asked, finally: What is it that is missing in 
such periods of stringency, capital or money in its function 
as a means of payment? And this is a well known contro- 
versy. 

In the first place, so far as the stringency is marked by a 
drain of gold, it is evident that what is demanded is the in- 
ternational means of payment. But money in its character of 
international means of payment is gold in its metallic actu- 
ality, as a quantity of values in itself, as a mass of values. It 
is at the same time capital, capital not as commodity-capital, 
but as money-capital, capital not in the form of commodities 
but in the form of money (and at that of money in the emi- 
nent meaning of the term, in which it exists as a universal 
world market commodity). It is not a question of a con- 
trast between a demand for money as a means of payment and 
a demand for capital. The contrast is rather between capital 
in its money-form and its commodity-form; and the form 
which is here demanded and which can alone perform any 
function here, is its money-form. 

Aside from this demand for gold (or silver) it cannot be 
said that there is a dearth of capital in such periods of crisis. 
Under extraordinary circumstances, such as a corn famine or 
a cotton famine, etc., this may be the case ; but these are not 
necessary or regular companions of such periods ; and the ex- 
istence of such a lack of capital cannot be assumed, without 
further ceremony, from the mere fact, that there is a heavy 
demand for pecuniary accommodation. On the contrary. 
The markets are overcrowded and swamped with commodi- 
ties. Evidently it is not the lack of commodity-capital which 
causes the stringency. We shall return to this question later. 



The Composition of Banking Capital. 545 



CHAPTER XXIX. 

THE COMPOSITION OF BANKING- CAPITAL. 

It is now necessary to find out more accurately, wliat are 
the constituent elements of banking capital. 

We have just seen, that F'ullarton and others transform the 
distinction between money as a means of circulation and 
money as a means of payment (or eventually as world money, 
whenever it is a question of gold drains) into a distinction 
between currency and capital. 

The peculiar role played by capital in this instance brought 
it about, that this banker's economics taught as insistently 
that money is indeed capital par excellence as the enlight- 
ened economics taught that money is not capital. 

In subsequent analysis we shall demonstrate, that in such 
cases money-capital is confounded with moneyed capital in the 
sense of interest-bearing capital, while in the first named sense 
money-capital is but a transient form of capital as distin- 
guished from the other forms of capital, commodity-capital 
and productive capital. 

The banking capital consists 1) of cash money, gold or 
notes; 2) securities. These again may be divided into two 
parts: Commercial bills, bills of exchange, which run for 
some time, become due, and the cashing (discounting) of 
which is the essentially profitable business of the banker; and 
public securities, such as government bonds, treasury notes, 
stocks of all kinds, in brief, interest-bearing papers, which are 
essentially different from bills of exchange. Mortgages may 
also be classed with this part. The capital composed of these 
various constituents is again divided into the banker's busi- 
ness capital, and into the deposits, which form his banking- 
capital, or borrowed capital. In the case of banks with an 

issue of notes these must be counted also. We leave the de- 

21 



546 Capitalist Production. 

posits and notes out of consideration for the present. It is 
evident, that nothing is altered in the actual constituents of 
banking capital (money, bills of exchange, deposits), whether 
these different elements represent the banker's o^^^l capital or 
deposits, the capital of other people. The same division 
would remain, whether he were to carry on his business with 
his own capital alone or with no other but deposited capital. 

The form of the interest-bearing capital is responsible for 
the fact, that every determined and regular revenue of money 
appears as interest on some capital, whether it be due to some 
capital or not. The money revenue is first converted into in- 
terest, and with the interest comes also the capital, from 
which it is drawn. In like manner every sum of money ap- 
pears as capital in connection with the interest-bearing cap- 
ital, as long as it is not spent as revenue; that is, it appears 
as principal compared to the possible or actual interest which 
it may yield. 

The matter is simple. Let the average rate of interest be 
5% annually. A suni of 500 pounds sterling would then 
yield 25 pounds sterling, if converted into interest-bearing 
capital. Every fixed annual income of 25 pounds sterling 
may then be considered as interest on a capital of 500 pounds 
sterling. This, however, is and remains a purely illusory 
conception, except the case in which the source of the 25 
pounds sterling, whether it be a mere title of ownership or 
claim of indebtedness, or an actual element of production, 
such as real estate, is directly transferable or assumes a form, ■ 
in v/hich it becomes transferable. Let us choose a govern- 
ment debt and wages for an illustration. 

The state has to pay to his creditors annually a certain 
amount of interest for the money loaned from them. In this 
case the creditor cannot call on the state to give up the prin- 
cipal. He can merely sell his claim, his title of ownership. 
The capital itself has been consumed, spent by the state. It 
does not exist any longer. What the creditor of the state 
possesses is 1) a certificate of indebtedness from the state, 
amounting, say, to 100 pounds sterling; 2) this certificate 
gives to the creditor a claim upon tlie annual revenues of the 



The Composition of Banking Capital. 547 

state, that is, the animal tax revenue, to a certain amount, say, 
5 pounds, or 5 % ; 3) the creditor may sell this certificate at 
his discretion to some other person. If the rate of interest 
is 5 %, and the security given by the state is good, the owner 
A of this certificate can sell it, as a rule, at its value of 100 
pounds sterling to B ; for it is the same to B, whether he loans 
100 pounds sterling at 5 % annually, or whether he secures 
for himself by the payment of 100 pounds sterling an annual 
tribute from the state to the amount of 5 pounds sterling. 
But in all these cases the capital, the progeny of which (in- 
terest) is paid by the state, is illusory, fictitious capital. 
'Not only does the amount loaned to the state exist no longer, 
but it was never intended at all to be invested as capital, and 
only by investment as capital could it have been transformed 
into a self-preserving value. For the original creditor A, the 
share of interest from taxes falling to him annually repre- 
sents so much interest on his capital, just as a certain share 
of the spendthrift's fortune does for the usurer, although in 
either case the loaned amount was not invested as capital. 
The possibility of selling his claim on the revenues of the 
state represents for A the possible return of his principal. 
As for B, his capital, from his own private point of view, is 
invested as interest-bearing capital. So far as the transac- 
tion is concerned, B has simply taken the place of A by buy- 
ing the latter's claim on the state's revenue. This transac- 
tion may be multiplied ever so often, the capital of the state 
debt remains a purely fictitious one, and from the moment that 
the certificates would become unsalable, the fiction of this 
capital would disappear. ISTevertheless tliis fictitious capital 
has its own movements, as we shall see presently. 

The capital of the national debt appears as a minus, and 
interest-bearing capital generally is the mother of all crazy 
forms, so that, for instance, debts may appear in the eyes of 
the banker as commodities. E'ow let us look at wages. 
Wages are here conceived as interest, so that labor-power 
stands for capital, which yields this interest. For instance, 
if the wages for one year amount to 50 pounds sterling, and 
the rate of interest is 5%, the annual labor-power is equal 



54^ Capitalist Production. 

to a capital of 1,000 pounds sterling. The insanity of the 
capitalist mode of conception reaches its climax here. Eor 
instead of explaining the self-expansion of capital out of the 
exploitation of labor-power, the matter is reversed and the 
productivity of labor-pov^er itself is this mystic thing, inter- 
est-bearing capital. In the second half of the 17th century 
this used to be a favorite conception (for instance with Petty) 
but it is used even nowadays in good earnest by vulgar econo- 
mists and more particularly by German statisticians.^^ 

Unfortunately two disagreeable facts mar this conception. 
In the first place, the laborer must work, in order to secure 
this interest. In the second place, he cannot transform the 
capital-value of his labor-power into cash by transferring it. 
On the contrary, the annual value of his labor-power is equal 
to his average annual wages, and his labor has to make good 
to the seller of his labor-power this same value plus a sur- 
plus-value, the increment added by his labor. Under a slave 
system the laborer has a capital-value, namely his purchase 
price. And when he is rented out, the renter has to pay, in 
the first place, the interest on this purchase price, and must 
furthermore make good the annual wear and tear of the cap- 
ital. 

The forming of a fictitious capital is called capitalising. 
Every periodically repeated income is capitalised by calcu- 
lating it on the average rate of interest, as an income which 
would be realised by a capital at this rate of interest. For 
instance, if the annual income is 100 pounds sterling and the 
rate of interest 5%, then these 100 pounds sterling would 
represent the annual interest on 2,000 pounds sterling, and 
these 2,000 pounds sterling are regarded as the capital-value 
of the legal title of ownership upon these 100 pounds sterling 
annually. For him who buys this title of ownership these 
100 pounds sterling of annual income represent indeed the 

*' " The laborer has a value as capital, which is found by considering the money- 
value of his annual wages as income from interest ... By capitalising the 
average daily wages at 4% we find the average value of an agricultural laborer 
of the male sex to be: German Austria, 1500 Thalers; Prussia, 1500; England, 
3750; France, 2000; Interior Russia, 750 Thalers." Von Reden, Vergleichende 
Kulturstatistik. Berlin, 184S, p. 134. 



The Composition of Banking Capital. 549 

interest on bis capital at 5%. All connection with the actual 
process of self-expansion of capital is thus lost to the last 
vestige, and the conception of capital as something which ex- 
pands itself automatically is thereby strengthened. 

Even when the certificate of indebtedness — the security — 
does not represent a purely fictitious capital, as it does in the 
case of state debts, the capital-value of such papers is never- 
theless wholly illusory. We have seen previously in what 
manner the credit system creates associated capital. The 
papers are considered as titles of ownership, which represent 
this capital. The stocks of railroads, mines, navigation com- 
panies, and the like, represent actual capital, namely the cap- 
ital invested and used in such ventures, or the amount of 
money advanced by the stockholders for the purpose of being 
used as capital in such ventures. This does not exclude the 
possibility that they may become victim-s of swindle. But 
this capital does not exist twofold, it does not exist as the 
capital-value of titles of ownership on one side and as the ac- 
tual capital invested, or to be invested, in those ventures on 
the other side. It exists only in this last form, and a share 
of stock is merely a title of ownership on a certain portion 
of the surplus-value to be realised by it. A may sell this 
title to B, and B may sell it to C. These transactions do not 
alter anything in the nature of the case. A or B then have 
their title in the shape of capital, but C has his capital merely 
in the shape of a title on the surplus-value to be realised by 
the stock capital. 

The independent movement of the value of these titles of 
ownership, not only of government bonds but also of stocks, 
adds weight to the illusion that they constitute a real capital 
by the side of that capital, or that title, upon which they may 
have a claim. For they become commodities, whose price 
has its own peculiar movements and is fixed in its own way. 
Their market value is determined differently from their nom- 
inal value, without any change in the value of the actual 
capital, which expands, of course. On the one hand their 
market value fluctuates with the amount and security of the 
yields, on which they have a claim. If the nominal value of 



55^^ Capitalist Production. 

a share of stock, that is, the invested sum originally repre- 
sented by this share, is 100 pounds sterlingj and the enter- 
prise pays 10%, instead of 5%, then their market-value, 
other circumstances remaining the same, rises to 200 pounds 
sterling, so long as the rate of interest is 5%, for when cap- 
italised at 5%, it now represents a fictitious capital of 200 
pounds sterling. He who buys it for 200 pounds sterling re- 
ceives a revenue of 5% on this investment of capital. If the 
success of the venture is such as to diminish the income from 
it, the reverse takes place. The market value of these papers 
is in part fictitious, as it is not determined merely by the ac- 
tual income, but also by the expected income, which is cal- 
culated in advance. But assuming the self-expansion of the 
actual capital to proceed at a constant rate, or, where no cap- 
ital exists, as in the case of state debts, the annual income to 
be fixed by law and otherwise sufiiciently secured, the price 
of such securities rises and falls inversely as the rate of in- 
terest. If the rate of interest rises from 5% to 10%, then 
a security guaranteeing an income of 5 pounds sterling will 
represent only a capital of 50 pounds sterling. If the rate 
of interest falls from 5% to 2^%, then the same security 
will represent a capital of 200 pounds sterling. Its value is 
always but its capitalised income, that is, its income calcu- 
lated on a fictitious capital of so many pounds sterling at the 
prevailing rate of interest. In times when there is a strin- 
gency of money on the market these securities will, therefore, 
fall in price for two reasons: First, because the rate of in- 
terest rises, and secondly, because they are thrown in large 
quantities upon the market for the purpose of getting ready 
cash. This drop in their price takes place independently of 
the fact, whether the income guaranteed to their owner by 
these papers is constant, as it is in the case of government 
bonds, or whether the self-expansion of the actual capital, 
which they represent, for instance in industrial enterprises, 
is subject to interruptions such as interfere with the process 
of reproduction. In this last eventuality the two causes of 
depreciation mentioned above are joined by a third one. As 
soon as the storm is over, the papers rise once more to their 



The Composition of Banking Capital. 551 

former level, unless they represent failures or swindles. 
Their depreciation in times of crisis serves as a potent means 
of centralising money. ^^ 

To the extent that the depreciation or appreciation of such 
papers is independent of the movements of the value of actual 
capital represented by them, the wealth of the nation is just 
as great before as after their depreciation. " On October 
23, 1847, the public funds and the canal and railroad stocks 
were already depreciated by 114,752,225 pounds sterling." 
So said Morris, the Governor of the Bank of England, in his 
testimony before the Committee on Commercial Distress, 
1847-48. Unless this depreciation implied an actual stop- 
ping of production and of trajSfic on canals and rails, or a sus- 
pension of pending enterprises in the beginning stages, or a 
throwing away of capital in positiv-ely worthless ventures, the 
nation did not grow poorer by one cent through the bursting 
of this bubble of fictitious capital. 

In all countries of capitalist production, there exists an 
enormous quantity of so-called interest-bearing capital, or 
moneyed capital, in this form. And accumulation of money- 
capital signifies to a large extent nothing else but an accumu- 
lation of such claims on production, an accumulation of the 
market-price, the illusory capital-value, of these claims. 

A part of the banking capital is invested in these so-called 
interest-bearing papers. This is itself a portion of the re- 
serve capital, which does not perform any function in the ac- 
tual business of banking. The greater portion of these papers 
consists of bills of exchange, that is, promises to pay made by 
industrial capitalists or merchants. For the money lender 
these papers are interest-bearing, in other words, when he 
buys them, he deducts interest for the time which they still 
have to run. This is called discounting. It depends on the 

^ [Immediately after the February Revolution, when commodities and securities 
were extremely depreciated and utterly unsaleable, a Swiss merchant in Liverpool, 
Mr. R. Zwilchenbart — who told my father about it — cashed all his belongings 
traveled with his cash to Paris and went to Rothschild, offering to do a joint 
business with him. Rothschild looked at him fixedly, rushed towards him, caught 
both his shoulders in his hands and asked: "Have you money in your posses- 
sion?" "Yes, Baron." "Then you are my man." And both of them made a 
great haul, — F. E.] 



552 Capitalist Production. 

prevailing rate of interest, how much of a deduction is made 
from the sum for which the bill calls. 

The last part of the capital of a banker consists of his 
money reserve in gold and notes. The deposits, unless tied 
up bj agreement for a certain time, are always at the disposal 
of the depositors. They are in a state of continual fluctua- 
tion. But while one depositor withdraws his, another brings 
his in, so that the general average amount of deposits fluctu- 
ates little during periods of normal business. 

The reserve funds of the banks, in countries with capital- 
ist production, always express on an average the magnitude of 
the money existing in the shape of a hoard, and a portion of 
this hoard in its turn consists of papers, mere drafts upon 
gold, which have no value in themselves. The greater por- 
tion of the banking capital is, therefore, purely fictitious and 
consists of certificates of indebtedness (bills of exchange), 
government securities (which represent spent capital), and 
stocks (claims on future yields of production). And it 
should not be forgotten, that the money-value of capital rep- 
resented by these papers in the strongboxes of the banker is 
itself fictitious, even of those which are checks for guaran- 
teed incomes, such as public bonds, or titles on actual capital, 
like industrial stocks, and that this value is regulated differ- 
ently than that of the actual capital, which they represent at 
least in part ; or, when they stand for mere claims on the out- 
put of production, and not for capital, that the claim on the 
same amount is expressed in a continually changing fictitious 
money-capital. In addition to this it must be noted, that 
this fictitious capital represents largely, not his own capital, 
but that of the public, which makes deposits with him, either 
with or without interest. 

Deposits are always made in money, in gold or notes, or in 
checks upon these. With the exception of the reserve fund, 
which is contracted or expanded in proportion to the require- 
ments of actual circulation, these deposits are in fact always 
in the hands, on one side, of the industrial capitalists and 
merchants, whose bills of exchange are discounted with them, 
and who receive advances out of them ; on the other side, they 



The Composition of Banking Capital. 553 

are in the hands of dealers in securities (exchange brokers), 
or in the hands of private parties, who have sold their securi- 
ties, or in the hands of the government (in the case of treas- 
ury notes and new loans). The deposits themselves play a 
double role. On the one hand, as we have just mentioned, 
they are loaned out as interest-bearing capital and are not 
found in the cash boxes of the banks, but figure merely in 
their books as credits of the depositors. On the other hand 
they figure as such book entries to the extent that the mutual 
credits of the depositors in the shape of checks on their de- 
posits are balanced against one another and so recorded. In 
this procedure it is immaterial, whether these deposits are en- 
trusted to the same banker, who can thus balance the various 
credits against each other, or whether this is done in different 
banks, who mutually exchange checks and pay only the bal- 
ances to one another. 

With the development of the credit system and of interest- 
bearing capital all capital seems to double, or even treble, 
itself by the various modes, in which the same capital, or 
perhaps the same claim on a debt, appears in different forms 
in different hands.^^ 

The greater portion of this " money-capital " is purely fic- 
titious. All the deposits, with the exception of the reserve 
fund, are merely credits placed with the banker, which, how- 

'* [This duplication and triplication of capital has developed considerably further 
in recent years, for instance through financial trusts, which already occupy a 
column of their own in the London bank reports. A society is organised for the 
purchase of a certain class of interest-bearing papers, say, of foreign government 
bonds, English municipal or American public bonds, railroad stocks, etc. The 
capital, for instance, 2 million pounds sterling, is secured by stock subscriptions. 
The Board of Directors buys the desired values up, or speculates more or less 
actively in them, and distributes the annual amounts of interest as dividends 
among the stockholders, after deducting the expenses. Furthermore, some stock 
companies have adopted the custom of dividing the ordinary shares into two 
classes, preferred and deferred. The preferred receive a fixed rate of interest, 
say 5%, provided that the total profit permits it; if there is anything left after 
that, the deferred get it. In this way the " solid " investment of capital is more 
or less separated by preferred shares from the speculation with the deferred 
shares. Since a few large enterprises have been unwilling to adopt this new mode, 
the expedient has been resorted to of organising new companies, that invest one 
or several millions of pounds sterling in shares of the first company and then 
issue new shares to the amount of the nominal value of the first shares, but 
make half of them preferred and the other half deferred. In this case the original 
shares are doubled, by serving as a basis for a new issue of shares. — F. E.] 



554 Capitalist Production. 

ever, never exist in deposit. To the extent that they serviB 
in the Giro business, they perform the function of capital for 
the bankers, after these have loaned them out. They pay to 
one another their mutual checks upon the nonexisting de- 
posits by balancing their mutual accounts. 

Adam Smith says justly v^ith regard to the role played by 
capital in the loaning of money : " Even in the money busi- 
ness the money is merely a check transferring from one hand 
to another such capitals as are not used by their owners. 
These capitals may be almost to any amount larger than the 
amount of money, which serves as an instrument of their 
transfer. The same pieces of money serve successively in 
many different loans, likewise in many different purchases. 
For instance, A lends to W 1,000 pounds sterling, with which 
W immediately buys from B 1,000 pounds sterling worth of 
commodities. Since B himself has no immediate use for this 
money, he lends the identical pieces of money to X, who im- 
mediately buys from C commodities worth 1,000 pounds ster- 
ling. In the same way and for the same reason C lends this 
money to Y, who again buys with it commodities from D. 
In this way the same pieces of. gold or paper may serve in the 
course of a few days in the promotion of three different loans 
and three different purchases, each one of which has a value 
equal to the full amount of these pieces. What the three 
moneyed men. A, B and C have transferred to the three bor- 
rowers, W, X and Y, is the power to make these purchases. 
In this power consists both the value and the usefulness of 
these loans. The capital loaned out by these three moneyed 
men is equal to the value of the commodities that can be 
bought with it, and it is three times greater than the value of 
the money with which these purchases are made. ]S[everthe- 
less all these loans may be perfectly safe, since the commodi- 
ties bought with them by the different debtors are employed in 
such a way, that they will in time bring an equal value in 
gold or paper money with a profit to boot. And just as the 
same pieces of money may serve in the promotion of different 
loans to an amount exceeding their own value three times, or 



The Composition of Banking Capital. 555 

even thirty times, just so may they serve successively as 
means of return payment." (Book II, chapter IV.) 

Since the same piece of money may perform different pur- 
chases, according to the velocity of its circulation, it may 
just as well perform the service of different loans, for the 
purchases take it from one hand to another, and a loan is but 
a transfer from one hand to another without the intervention 
of a purchase. To every seller his money represents the 
changed form of his commodities. ISTowadays, when every 
value is expressed as the value of capital, it represents in the 
various loans different capitals, and this is but another way 
of saying that it can realise different commodity-values suc- 
cessively. At the same time it serves as a medium of circu- 
lation, in order to transfer the material capitals from hand 
to hand. In the transaction of loaning it does not pass from 
hand to hand as a medium of circulation. So long as it re- 
mains in the hands of the lender, it is in his hands not a 
medium of circulation, but the existing value of his capital. 
And in this form he transfers it when loaning it to another. 
If A had loaned the money to B, and B to C, without the in- 
tervention of purchases, then the same money would not rep- 
resent three capitals, but only one, only one capital-value. 
How many capitals it actually represents depends on the num- 
ber of times in which it performs the service of the embodied 
value of different commodity-capitals. 

The same thing which Adam Smith says of loans in gen- 
eral applies also to deposits, since these are merely another 
name for loans, which the public gives to the bankers. The 
same pieces of money may serve as instruments for any num- 
ber of deposits. 

" It is undoubtedly true, that the 1,000 pounds sterling, 
which some one deposits today with A, are again issued to- 
morrow and become a deposit with B, The day after, paid 
away by B, they may form a deposit with C, and so forth 
infinitely. The same 1,000 pounds sterling may, therefore, 
by a number of transfers, multiply themselves into an abso- 
lutely indeterminable sum of deposits. It is, therefore, pos- 
sible, that nine-tenths of all the deposits in the United King- 



556 ■ Capitalist Production. 

dom have no existence, save for the entries in the books of 
bankers registering them, who have to square accounts in due 
time. . . . Such was the case in Scotland, where the 
currency of money never exceeded 3 million pounds sterling, 
while the deposits amounted to 27 millions. Unless a gen- 
eral run be made on the banks on account of these deposits, 
the same 1,000 pounds sterling, traveling backwards, might 
easily balance an equally indeterminable sum. Since the 
same 1,000 pounds sterling, with which some one pays today 
his debt to some dealer, may tomorrow settle this dealer's debt 
to some merchant, and next day the debt of the merchant to 
his bank, and so forth without end, the same 1,000 pounds 
sterling may also wander from hand to hand and from bank 
to bank, and balance any conceivable amount of deposits." 
(The Currency Question JReviewed, pp. 162, 163.) 

Just as everything is duplicated and triplicated in this 
credit system and commuted into a mere fiction, so the same 
applies to the " reserve fund," where one would at last hope 
to grasp something solid. 

Listen once more to Mr. Morris, the Governor of the Bank 
of England : " The reserves of the private banks are in the 
hands of the Bank of England in the form of deposits. The 
first effects of an export of gold seem to strike only the Bank 
of England; but it would just as well influence the reserves 
of the other banks, since it means an export of a part of the 
reserves, which they have de|)osited in our bank. In the 
same way it would influence the reserves of all provincial 
banks." (Commercial Distress 184:7 -4cS.) Ultimately, then, 
the reserve funds actually dissolve themselves into the reserve 
fund of the Bank of England.^*^ 

°^ [To what extent this has since increased is proved by the following official 
tabulation of the bank reserves of the fifteen largest London banks in November, 
1892, taken from the Daily News of December 15, 1892: 

NAME OF BANK LIABILITIES CASH RESERVE PERCENTAGES 

City £9,317,629 £ 746,551 8.01 

Capital and Counties 11,392,744 1,307,483 11.47 

Imperial 3,987,400 447,157 11.21 

Lloyds 23,800,937 2,966,806 12 . 46 

London & Westminster 24,671,559 3,818,885 15.50 

London & S. Western 5,570,268 812,353 13.58 

London Joint Stock 12,127,993 1,388,977 10.63 



The Composition of Banking Capital. 557 

However, this reserve fund again has a double existence. 
The reserve fund of the banking department of the Bank of 
England is equal to the excess of the notes, which the Bank 
is authorised to issue, over the notes in circulation. The legal 
maximum of the note issue is 14 million pounds sterling (for 
which no metallic reserve is required; it is tlie approximate 
amount owed by the state to the Bank) plus the amount of 
the precious metals in the Bank. If the supply of precious 
metals in the Bank amounts to 14 million pounds sterling, 
the Bank can issue 28 millions in notes, and if 20 millions 
of these are in circulation, the reserve fund of the banking 
department is 8 million pounds sterling. These 8 million 
pounds sterling are, in that case, legally the banking capital 
at the disposal of the Bank, and at the same time the reserve 
fund for its deposits. If an exportation of gold takes place 
now, by which the supply of precious metals in the Bank is 
reduced by 6 millions — notes to this amount must be de- 
stroyed at the same time — tlien the reserve of the banking 
department would fall from 8 millions to 2 millions. On 
the one hand, the Bank would raise its rate of interest con- 
siderably; on the other hand, the banks having deposits with 
it, and the other depositors, would observe a large decrease 
of the reserve fund covering their own credits in the Bank. 
In 1857 four of the largest stock banks of London threatened 
to call in their deposits, and thereby bankrupt the banking 
department, unless the Bank of England would secure a 

NAME OF BANK LIABILITIES CASH RESERVE PERCENTAGES 

London & Midland 8,814,499 1,127,280 12.79 

London & County 37,111,035 3,600,374 9 . 70 

National 11,163,829 1,426,225 12.77 

National Provincial 41,907,384 4,614,780 11.01 

Parrs & the Alliance 12,794,489 1,532,707 11.93 

Prescott & Co 4,041,058 538,517 13.07 

Union of London 15,502,618 2,300,084 14.84 

Williams, Deacon & Manchester, etc. 10,452,381 1,317,628 12.60 

Total £232,655,823 £27,845,807 11.97 

Of this sum of almost 28 millions of reserve, at least 25 millions are deposited 
in the Bank of England, and at most 3 millions of cash in the strongboxes of the 
15 banks themselves. But the cash reserve of the banking department of the 
Bank of England never exceeded 16 millions during that same November of 1893. — 
F. E.] 



55^ Capitalist Production. 

" government script " suspending the Bank Acts of 1844.®'' 
In this way the banking department might fail, while a 
certain number of millions (for instance, 8 millions in 184Y) 
are held in its issue department to secure the convertibil- 
ity of its circulating notes. But this security is once more 
illusory. 

" The greater portion of the deposits, for which the bank- 
ers themselves have no immediate demand, passes into the 
hands of the bill brokers, who in return give to the banker 
security for his loan by means of commercial bills, which 
they have already discounted for people in London or in the 
provinces. The bill broker is responsible to the banker for 
the return payment of this money at call; and these transac- 
tions are of such an enormous volume, that Mr. Neave, the 
present Governor of the Bank of England, said in his testi- 
mony: We know that one broker had 5 millions, and we 
have reason to assume, that another had between 8 and 10 
millions; another had 4, another 3^, a third more than 8. 
I speak of deposits with the brokers." (Report of Commit- 
tee on Bank Acts, 1857-58, p. 5, section 8.) 

" The London bill brokers . . . carried on their enor- 
mous business without any reserve in cash; they relied upon 
the incomes from the successively due bills, or when it came 
to the worst, upon their power to secure from the Bank of 
England loans on depositing bills discounted by them." — 
Two firms of bill brokers in London suspended payments in 
1847; both resumed business later. In 1857 they suspended 
again. The liabilities of one of these firms amounted in 1847 
in roimd figures to 2,683,000 pounds sterling with a capital 
of 180,000 pounds sterling; its liabilities in 1857 were 5,- 
300,000 pounds sterling, while its capital apparently was not 
more than one-quarter of what it had been in 1847. The lia- 
bilities of the other firm were both times between 3 or 4 mil- 
lions, while its capital amounted to no more than 45,000 
pounds sterling. (Ibidem, p. XXI, section 52.) 

" The suspension of the Bank Acts of 1844 permitted to the Bank to issue any 
quantity of bank notes regardless of any backing by the gold reserve in its pos- 
session; to create, in this way, an arbitrary quantity of fictitious money-capital 
made of paper, and use it for the purpose of making loans to banks, exchange 
brokers, and through them to commerce. 



Money-Capital and Actual Capital. 559 



CHAPTEE XXX. 

MONEY-CAPITAL AND ACTUAL, CAPITAL, I. 

The only difficult questions, which we are now approaching 
in the matter of the credit system, are the following: 

First: The accumulation of the money-capital strictly so- 
called. To what extent is it, and is it not, an indication of an 
actual accumulation of capital, that is, of reproduction on an 
enlarged scale? The so-called plethora of capital, an expres- 
sion used only with reference to the interest-bearing capital, 
is it only a peculiar way of expressing industrial overproduc- 
tion, or does it constitute a separate phenomenon alongside 
of it ? Does this plethora, or this excessive supply of money- 
capital, coincide with the existence of stagnating masses of 
money (bullion, gold coin and bank notes), so that this super- 
fluity of actual money is an expression and phenomenon of 
that plethora of loan capital? 

Secondly: To what extent does a stringency of money, 
that is, a scarcity of loan capital, express a real lack of actual 
capital (commodity-capital and productive capital) ? To 
what extent does it coincide, on the other hand, with a lack 
of money as such^ a lack of currency ? 

So far as we have hitherto considered the peculiar form of 
accumulation of money-capital and of money wealth in gen- 
eral, it resolved itself into an accumulation of claims of own- 
ership upon labor. The accumulation of the capital of the 
national debt has been revealed to mean merely an increase 
of a class of state creditors, who have the privilege of a first 
claim upon the revenues.^ ^ 

*^ The public funds are nothing else but an imaginary capital, which represents 
that portion of the annual revenue, which is set aside to pay the debt. A capital 
of the same amount has been spent; it is this which serves as a denominator for 
the loan, but it is not this which is represented by the public funds; for this capital 
does not exist any longer. However, new wealth must be created by the work of 
industry; a portion of this wealth is annually set aside in advance for those, who 



560 Capitalist Production. 

In these facts, by wliicli even an accumulation of debts may 
appear as an accumulation of capital, the perfection of the 
reversal accomplished by the credit system becomes apparent. 
These certificates of indebtedness, which are issued in place 
of the originally loaned and long spent capital, these paper 
duplicates of destroyed capital, serve for their o^vners as cap- 
ital to the extent that they are salable commodities and may, 
therefore, be reconverted into capital. 

The titles of ownership upon company business, railroads, 
mines, etc., are indeed, as we have seen, titles on actual capi- 
tal. But they do not imply any control of this capital. It 
cannot be called in. They merely convey legal titles to a por- 
tion of the surplus-value to be produced by it. But these 
titles become likewise paper duplicates of the actual capital, 
as though a bill of lading were to acquire a value separate 
from the cargo and simultaneously with it. They become 
nominal representatives of a capital that does not exist. Tor 
the actual capital exists simultaneously and does not change 
hands by the transfer of those duplicates. They assume the 
form of interest-bearing capital, because they not only safe- 
guard a certain income, but also make it possible to secure 
possession of their capital-value in the shape of a return-pay- 
ment when sold. To the extent that the accumulation of 
these papers expresses the accumulation of railroads, mines, 
steamships, etc., it indicates the expansion of the actual proc- 
ess of reproduction, just as the expansion, say, of a tax list 
indicates the expansion of the taxed objects, for instance, of 
movable property. But as duplicates serving themselves as 
commodities for sale and thus circulating as capital-values 
they are illusory, and their value may fall or rise independ- 
ently of the value of the actual capital, upon which they rep- 
resent a claim. Their value, that is, their quotation at the 
Stock Exchange, necessarily has a tendency to rise with a 
fall in the rate of interest, so far as this fall, independently 

have loaned that wealth, which has been spent; this portion is taken by means of 
taxes from those who produce it, and is given to the creditors of the state, and, 
according to the customary proportion between capital and interest in this country, 
an imaginary capital is assumed of the same magnitude as that which could give 
rise to the annual income which these creditors are to receive. Sismondi, Nou- 
veaux Principles, II, p. 230. 



Money-Capital and Actual Capitol. 561 

of the peculiar movements of money-capital, is due merely to 
the tendency of the rate of profit to fall; so that this imag- 
inary wealth, which has originally a nominal value for each 
of its aliquot parts, expands for this reason alone in the course 
of capitalist production.^^ 

Gain and loss through fluctuations in the price of these 
titles of ownership, and their centralisation in the hands of 
railroad kings, etc., naturally becomes more and more a mat- 
ter of gambling, which takes the place of labor as the original 
method of acquiring capital and also assumes the place of di- 
rect force. This sort of imaginary money wealth does not 
merely constitute a very considerable part of the money wealth 
of private people, but also of banking capital, as we have al- 
ready indicated. 

In order to settle this point without delay, we mention the 
idea, that one might also mean by the accumulation of money- 
capital the accumulation of wealth in the hands of bankers 
(money lenders by profession), acting as middle men between 
private money-capitalists on one side and the state, communi- 
ties, and reproducing borrowers on the other. For the entire 
vast extension of the credit system, and of all credit in gen- 
eral, is exploited by them as though it were their private cap- 
ital. These fellows possess capital and incomes always in the 
form of money or of direct claims upon money. The ac- 
cumulation of the wealth of this class may proceed in a direc- 
tion very different from actual accumulation, but it proves 
at any rate, that this class pockets a good deal of the real ac- 
cumulation. 

Let us reduce the inquiry to narrower limits. Government 
bonds, like stocks and other securities of all kinds, are spheres 
of investment for loanable capital, for capital intended to bear 
interest. They are forms of loaning such capital. But they 

^ A portion of the accumulated loanable money-capital is indeed merely an ex- 
pression of the industrial capital. For instance, when England, in 1857, had in- 
vested SO million pounds sterling in American railroads and other enterprises, this 
investment was transacted almost throughout by the export of English commodities 
for which the Americans did not have to make payment in return. The English 
exporter drew bills of exchange for these commodities on America, the English 
stock subscribers bought these bills and used them to pay the amount of their 
stock subscriptions to America. 

SJ 



562 Capitalist Production. 

are not the loan capital itself, which is invested in them. On 
the other hand, so far as credit plays a direct role in the proc- 
ess of reproduction: what the industrial capitalist or the mer- 
chant need when wishing to have a bill discounted or a loan 
granted is neither stocks nor government bonds. What they 
need is money. They pawn or sell those securities, when they 
cannot secure money in any other way. It is the accumula- 
tion of this loan capital, with which we have to deal here, and 
more particularly of the loanable money-capital. We are not 
here concerned in the loans of houses, machines, or other fixed 
capital. JSTor are we concerned in loans, which industrials 
and merchants make to one another in the shape of commodi- 
ties and within the circle of the process of reproduction. 
We must, indeed, investigate this point still farther before 
we proceed. But we are concerned exclusively in loans of 
money, which are made by bankers, as middle men, to in- 
dustrials and merchants. 



Let us, then, analyse first the commercial credit, that is, 
the credit which the capitalists engaged in reproduction give 
to one another. It forms the basis of the credit system. Its 
representative is the bill of exchange, a certificate of indebted- 
ness whose payment is due at a certain date, a document of 
deferred payment. Every one gives credit with one hand and 
takes it with the other. Let us leave aside, for the present, 
the banking credit, which constitutes another, quite different, 
element. To the extent that these bills in their turn circulate 
among the merchants as means of payment, by endorsement 
from one to another, without the intervention of discount, it 
is merely a transfer of a claim of indebtedness from A to B, 
and does not alter anything in the general connection. It 
merely places one man into the position of another. And 
even in this case the liquidation may take place without the 
intervention of money. The spinner A, for instance, has to 
pay a bill of exchange to the cotton broker B, and he has to 
pay a bill to the importer C. l^ow, if C also exports yam, 
which happens often enough, he may buy yarn from A on a 



Money-Capital and Actual Capital. 563 

bill of exchange, and the spinner A may guarantee the broker 
B with the broker's own bill paid by C to A, whereby at best 
a balance may have to be settled. The entire transaction then 
promotes merely the exchange of cotton and yarn. The ex- 
porter represents but the spinner, the cotton broker the cotton 
planter. 

In the cycle of this commercial credit we must note two 
things : 

First : The settlement of these mutual claims of indebt- 
edness depends upon the reflux of capital, that is, of C — M, 
which is merely deferred. If the spinner has received a bill 
of exchange from a cotton goods manufacturer, then this 
manufacturer can pay, when he has sold the cotton goods, 
which he has on the market. If the corn speculator has made 
out a bill of exchange on his dealer, then the dealer can pay 
the money, if the corn has meanwhile been sold at the ex- 
pected price. These payments, then, depend upon the smooth 
run of the reproduction, that is, the process of production 
and consumption. But since the credits are mutual, the sol- 
vency of one depends upon the solvency of another; for in 
making out his bill of exchange every one may have counted 
either on the reflux of the capital in his own business or on the 
reflux of the capital in anothers business, who has to pay him 
for a bill of exchange drawn in the meantime. Aside from 
the prospect of returns, the payment is possible only by means 
of reserve capital, which the writer of the bill has at his com- 
mand, in order to meet his obligations in case the returns 
should be delayed. 

Secondly: This credit system does not do away with the 
necessity of cash payments. For a large portion of the ex- 
penses must always be paid in cash, such as wages, taxes, etc. 
Furthermore, capitalist B, who has received from C a bill of 
exchange in place of cash payment, may have to pay his own 
due bill to D before the bill of C becomes due, and so he must 
have ready cash. A rotation of such completeness as that as- 
sumed above in the reproduction from cotton planter to cotton 
spinner and vice versa will be an exception; as a rule repro- 
duction will be infringed at many points. We have seen in 



564 Capitalist Production. 

the discussion of tlie process of reproduction, volume II, 
Part III, that the producers of constant capital exchange 
partly constant capital among each other. In such a case the 
JdIUs of exchange may be balanced against one another more 
or less. The same may be the case in the ascending line of 
production, where the cotton broker draws on the cotton 
spinner, the spinner on the manufacturer of cotton goods, the 
manufacturer on the exporter, the exporter on the importer 
(who may be an importer of cotton). But the cycle of these 
transactions is not completed simultaneously, and the series 
of claims is not turned around backward in the same way. 
For instance, the claim of the spinner on the weaver is not 
settled by the claim of the coal dealer on the machine builder. 
The spinner never has any counterclaims in his business on 
the machine manufacturer, because his product, yarn, never 
enters as an element into the process of reproduction of the 
machine maker. Such claims must, therefore, be settled by 
money. 

The limits of this commercial credit, considered by itself, 
are 1), the wealth of the industrials and merchants, that is, 
their command of reserve capital in case of delayed returns; 
2) these returns themselves. These may be delayed in time 
or the prices of commodities may fall in the meantime or 
the commodities may become momentarily unsalable through 
a clogging of the markets. The longer the bill runs, the 
larger must be the reserve capital, and the greater is the pos- 
sibility of an infringement or a retardation of the returns 
through a fall of prices or an overstocking of markets. And, 
furthermore, the returns are so much less secure, the more 
the original transaction was conditioned upon speculation on 
the rise or fall of the prices of commodities. But it is 
evident, that with the development of the productive power 
of labor, and thus of production on a large scale, 1) the 
markets expand and move a greater distance from the place 
of production; 2) that credits must be prolonged in con- 
sequence; 3) that the speculative element must thus more and 
more dominate the transactions. Production on a large scale 
and for distant markets throws the total product into the 



Money-Capital and Actual Capital. 5^5 

hands of commerce; but it is impossible, that the capital of 
a nation should be doubled in such a way, that commerce by 
itself would be able to buy up the entire national product 
with its own capital and to sell it again. Credit is, therefore, 
indispensable here. Credit must grow in volume with the 
growing volume of value in production, and it must grow in 
the matter of time with the increasing distance of the markets. 
A mutual interaction takes place here. The development of 
the process of production extends the credit, and credit leads 
to an extension of industrial and commercial operations. 

Looking upon this credit separate from banking credit, it 
is evident that it grows with an increasing volume of industrial 
capital itself. Loan capital and industrial capital are here 
identical. The loaned capitals are commodity-capitals, in- 
tended either for ultimate individual consumption, or for the 
replacement of the constant elements of productive capital. 
What appears as loan capital in this case is always capital 
existing in some definite phase of the process of reproduction, 
but passing through sale and purchase from one hand to the 
other, while its equivalent is not paid to the buyer until 
later at some stipulated time. For instance, the cotton 
passes into the hands of the spinner in exchange for a bill 
of exchange, the yarn into the hands of the manufacturer of 
cotton goods in exchange for another bill, the cotton goods 
into the hands of the merchant for another bill, from the 
hands of the merchant into those of the exporter for another 
bill, from the hands of the exporter for another bill into 
those of some merchant in India, who sells the goods and buys 
indigo instead, etc. During this passage from hand to hand 
the cotton accomplishes its metamorphosis into cotton goods, 
and the cotton goods are finally transported to India and ex- 
changed for indigo, which is shipped to Europe and enters 
there into the reproductive process. The various phases" of 
the process of reproduction are here promoted by the credit, 
without any payment on the part of the spinner for the cot- 
ton, on the part of the manufacturer of cotton goods for the 
yarn, on the part of the merchant for the cotton goods, etc. 
In the first acts of this process the commodity, cotton, goes 



566 Capitalist Production. 

through its different phases of production, and this transition 
is promoted by credit. But as soon as the cotton has re- 
ceived its ultimate form as a commodity, the same com- 
modity-capital passes on through the hands of different mar- 
chants, who promote its transportation to distant markets, 
and the last of the merchants finally sells these commodities 
to the consumer and buys other commodities in their stead, 
Vvhich passes either into consumption or into the process of 
reproduction. Here, tlien, we have to distinguish two sec- 
tions: In the first, credit promotes the actual successive 
phases in the production of the same article; in the second, 
it promotes merely the passage of the finished article from 
the hands of one merchant into those of another, including 
its transportation, -in other words, the act C — M. Yet the 
commodity is even here at least in a process of circulation, that 
is, in a phase of the process of reproduction. 

It follows, then, that it is never unemployed capital, which 
is loaned here, but capital, which must change its form in 
the hands of its owner and which exists in such a form, that 
it is merely commodity-capital for him, that is, capital 
which must be reconverted into its original form, and for the 
present, at least, into money. It is, therefore, the metamor- 
phosis of the commodity, which is here promoted by credit; 
not merely C — M, but also M — C and the actual process 
of reproduction. Much credit within the reproductive cycle 
does not signify (banker's credit excepted) much unemployed 
capital, which, is offered for loans and looking for profitable 
investment. It means rather much employment for capital 
in the process of reproduction. Credit promotes here, 1) so 
far as the industrial capitalists are concerned, the transition 
of industrial capital from one phase into another, the con- 
nection of the related and dove-tailing spheres of production ; 
2) so far as the merchants are concerned, it promotes the 
transportation and the passage of commodities from one hand 
to another imtil their definite sale for money or their ex- 
change for other commodities. 

The maximum of credit is here identical with the fullest 
employment of industrial capital, that is, the utmost exertion 



Money-Capital and Actual Capital. 567 

of its reproductive power without regard to the limits of 
consumption. These limits of consumption are extended by 
the exertions of the process of reproduction itself. On one 
hand this increases the consumption of revenue on the part 
of laborers and capitalists, on the other it i^ identical with 
an exertion of productive consumption. 

So long as the process of reproduction is in flow and the 
reflux assured, this credit lasts and extends, and its extension 
is based upon the extension of the process of reproduction 
itself. As soon as a stoppage takes place, in consequence of 
delayed returns, overstocked markets, fallen prices, there is 
a superfluity of industrial capital, but it is in a form, in 
which it cannot perform its functions. It is a mass of com- 
modity-capital, but it is- unsalable. It is a mass of fixed 
capital, but largely unemployed through the clogging of re- 
production. Credit is contracted, 1) because this capital is 
unemployed, that is, stops in one of its phases of reproduction, 
not being able to complete its metamorphosis ; 2 ) because con- 
fidence in the continuity of the process of reproduction has 
been shaken; 3) because the demand for this commercial 
credit decreases. The spinner, who restricts his production 
and has a mass of unsold yarn in stock, does not need to buy 
any cotton on credit ; the merchant does not need to buy any 
commodities on credit, because he has more than enough of 
them. 

Hence, if this expansion is disturbed, or even the normal 
exertion of the process of reproduction infringed, credit also 
becomes scarce; it is more difficult to get commodities on 
credit. It is particularly the demand for cash payment and 
the caution observed toward sales on credit which are 
characteristic of that phase of the industrial cycle, which 
follows a crash. In the crisis itself, when every one has 
things to sell, cannot sell them, and yet must sell them, if he 
Avould secure means of payment, it is not the mass of the 
unemployed and investment seeking capital, but rather the 
mass of capital tied up in his process of reproduction, that 
is greatest just when the lack of credit is most felt (and the 
rate of discount highest in banking credit). The hitherto 



568 Capitalist Production. 

invested capital is then, indeed, unemployed, because the 
process of reproduction lags. Factories are closed, raw 
materials accumulate, finished products swamp the market 
as commodities. ISTothing is more erroneous, therefore, than 
to blame a scarcity of productive capital for such a condition. 
It is precisely at such times that there is a superabundance 
of productive capital, partly so far as the normal, but tem- 
porarily contracted, scale of reproduction is concerned, partly 
with regard to the paralysed consumption. 

Let us suppose that the whole society is composed only 
of industrial capitalists and wage workers. Let us further- 
more make exceptions of fluctuations of prices, which prevent 
large portions of the tptal capital from reproducing them- 
selves under average conditions and which, owing to the 
general interrelations of the entire process of reproduction, 
such as are developed particularly by credit, must always" call 
forth general stoppages of a transient nature. Let us also 
make abstraction of the bogus transactions and speculations, 
which the credit system favors. In that case, a crisis could 
be explained only by a disproportion of production in various 
branches, and by a disproportion of the consumption of the 
capitalists and the accumulation of their capitals. But as 
matters stand, the reproduction of the capitals invested in ' 
production depends largely upon the consuming power of the 
non-producing classes; while the consuming power of the la- 
borers is handicapped partly by the laws of wages, partly 
by the fact that it can be exerted only so long as the laborers 
can be employed at a profit for the capitalist class. The last 
cause of all real crises always remains the poverty and 
restricted consumption of the masses as compared to the 
tendency of capitalist production to develop the productive 
forces in such a way, that only the absolute power of con- 
sumption of the entire society would be their limit. 

A real lack of productive capital, at least among capi- 
talistically developed nations, can be said to exist only in 
times of general crop failures, either in the principal means 
of subsistence, or in the principal raw materials of industry. 

However, in addition to this commercial credit we have the 



Money-Capital and Actual Capital. 569 

money credit strictly so-called. The loans of the industrials 
and merchants among one another go hand in hand with loans 
made to them by the banker and money lender in the form 
of money. In the discounting of bills of exchange the loan 
is but nominal. A manufacturer sells his product for a 
bill of exchange and gets this bill discounted at some bill 
broker's. In reality this broker loans only the credit of his 
banker, and this banker loans to the broker the money of his 
depositors, made up of the industrial capitalists and mer- 
chants themselves, of drawers of ground rent and other un- 
productive classes, but also of laborers (in savings banks). 
In this way every industrial manufacturer and merchant gets 
around the necessity of keeping a large reserve fund and 
being dependent upon his actual returns. On the other hand 
the whole process becomes so complicated, partly by the 
making of bogus checks, partly by operations with com- 
modities for the mere purpose of writing bills of exchange, 
that the semblance of a solid business and a smooth run of 
returns may persist even after returns come in only at the 
expense of swindled money lenders or swindled producers. 
Thus the business appears almost too sound just on the eve 
of a crash. The best proof of this is furnished, for 
instance, by the Reports on Bank Acts of 1857 and 1858, 
in which all bank directors, merchants, in short, all the 
summoned experts, with Lord Overstone at their head, con- 
gratulated one another on the prosperity and soundness of 
business — just one month before the eruption of the crisis 
of August, 1857. And, queer enough, Tooke in his History 
of Prices passes through the same illusion as the historian 
of every crisis. Business is always thoroughly sound and 
the campaign in full swing, until the collapse suddenly over- 
takes them. 

We revert now to the accumulation of money-capital. 

ISTot every augmentation of loanable capital indicates a 
real accumulation of capital or expansion of the process of 
reproduction. This becomes most evident in the phase of the 
industrial cycle following immediately after a crisis, when 



570 Capitalist Production. 

loanable capital lies fallow in masses. In such moments, in 
which the process of production is restricted (production in 
the English industrial districts was reduced by one-third 
after the crisis of 1847), prices of commodities at their 
lowest level, the spirit of enterprise paralysed, the rate of 
interest is low, and it indicates then merely an increase of 
loanable capital precisely because the industrial capital has 
been laid lame. It is quite obvious, that less currency is re- 
quired, when the prices of commodities have fallen, the number 
of transactions decreased, and the capital invested in wages 
contracted; that, on the other hand, no additional money is 
required for the function of world money after the debts to 
foreign countries have been settled either by the exportation 
of gold or by bankruptcies ; that, finally, the volume of the 
business of discounting bills diminishes with the number and 
amounts of bills of exchange. Hence the demand for loanable 
capital, either in the form of means of circulation or of means 
of pajTuent (the investment of new capital being out of 
the question for a while), decreases and it becomes relatively 
abundant. At the same time, the supply of loanable capital 
increases also positively under such circumstances, as we shall 
see later. 

Thus " a reduction of transactions and a great super- 
abundance of money " prevailed after the crisis of 1847 
(Commercial Distress, 1847-48, Evidence ISTo. 1664.) The 
rate of interest was very low on account of the " almost 
complete annihilation of commerce and nearly utter absence 
of a possibility of investing money" (1. c, p. 45, Testimony 
of Hodgson, Director of the Eoyal Bank of Liverpool). 
What nonsense those gentlemen concocted (and Hodgson is 
one of the best of them) in order to explain these facts, may 
be seen from the following phrase: "The stringency (1847) 
arose from an actual reduction of the money-capital in the 
country, caused partly by the necessity of paying for the 
imports from all quarters of the globe in gold, and partly by 
the conversion of floating capital into fixed," How the con- 
version of circulating capital into fixed capital should reduce 
the money-capital of a country is unintelligible. For in the 



Money-Capital and Actual Capital. 571 

case of railroads, e. g., in which capital was mainly invested 
at that time, neither gold nor paper are used up for viaducts 
and rails, and the money for the railroad stocks, to the extent 
that it had been deposited for subscriptions, performed ex- 
actly the same functions as any other money deposited in 
banks and even increased the loanable money-capital tempo- 
rarily, as shown above. But to the extent that it had been 
spent for construction, it circulated in the country as a 
means of circulation and payment. Only so far as fixed cap- 
ital cannot be exported, so that with the impossibility of its 
export the available capital secured by returns from exported 
articles is eliminated, including the returns in bullion or cash, 
might the money-capital be affected. But English export 
articles were likewise piled up in masses on the foreign 
markets without being salable. It is true, the floating capital 
of the merchants and manufacturers of Manchester, etc., who 
had tied up a portion of their normal business capital in rail- 
road stocks and were therefore dependent upon loan capital 
for the continuation of their business, had become fixed, and 
they had to put up with the consequences. But it would 
have been the same, if the capital belonging to their business, 
but withdrawn from it, had been invested, say, in mines 
instead of railroads, mining products like iron, coal, copper 
being themselves floating capital. 

The actual reduction of available money-capital through 
crop failure, corn imports, and gold exports constituted an 
event that had nothing to do with the railroad swindles. — 
" JSTearly all commercial firms had begun to starve their busi- 
ness more or less, in order to invest the money in railroads." 
— The very extensive loans, which were made to railroads 
by commercial firms, misled the latter to depend far too much 
through the discounting of bills upon the banks and to carry 
on the commercial business in this way " (the same Hodgson, 
1. c," p. 6Y). " In Manchester immense losses were sus- 
tained through speculation in railroads " (R. Gardner, pre- 
viously mentioned in volume I chapter XV, 3, c, p. 449, 
American edition, and in other places, Evidence I^o. 4877, 
1. c). 



572 Capitalist Production. 

One of the principal causes of the crisis of 1847 was the 
colossal overcrowding of the markets and the unbounded 
swindle in the East Indian trade with commodities. But 
there were also other circumstances, which bankrupted very 
rich firms in this line : " They had plenty of means, but 
these could not be made available. Their entire capital was 
tied up in real estate in Mauritius, or in indigo and sugar 
factories. After they had assumed obligations to the tune of 
5-600,000 pounds sterling, they had no means at hand to 
pay their bills of exchange, and finally it was found that, in 
order to pay their bills, they would have to rely entirely upon 
credit" (Ch. Turner, great East Indian merchant in 
Liverpool, 'No. 730, 1. c). — See furthermore Gardner, No. 
4872, 1. c. : Immediately after the Chinese treaty such great 
prospects for a tremendous extension of our trade with China 
were held out to this country, that many large factories were 
built expressly for this business, for the purpose of manu- 
facturing the cotton goods mainly demanded in the Chinese 
markets, and these were added to all our already existing fac- 
tories." — 4874. "How did this business come out?" — 
" Most disastrously, so that it defies almost every description ; 
I do not believe, that of all the shipments to China in 1844 
and 1845 more than two-thirds of the amount have ever re- 
turned; tea being the principal article of return export, and 
such great prospects having been held out to us, we manu- 
facturers counted without fail on a large reduction of the tea 
tax. " — And now, naively expressed, comes the characteristic 
confession of faith of the English manufacturer : " Our trade 
with a foreign market is not limited by its capacity of con- 
suming our products, it is rather limited here at home by our 
capacity of consuming the products, which we receive in return 
for our industrial products. " (The relatively poor countries, 
with whom England trades, are supposed to be able to pay for 
and consume any amount of English products, but unfortu- 
nately wealthy England cannot digest the products sent in 
return.) — ^4876. "At first I shipped a few commodities 
out, and these were sold at a loss of about 15% in the full 
conviction that the price, at which my agents could buy tea, 



Money-Capital and Actual Capital. 573 

would yield so large a profit through its sale here, that this 
loss would be made good; but instead of making a profit, I 
lost sometimes 25% and even as much as 50%." — 4877. 
" Did the manufacturers export fox their own account ? " — 
" Principally ; the merchants, it seems, saw very soon that 
thej did not make anything, and they encouraged the manu- 
facturers to make consignments rather than to participate in 
them themselves. " — In 1857, on the otlier hand, the losses 
and failures fell mainly upon the merchants, since the manu- 
facturers left to them the task of overcrowding the foreign 
markets " for their own account." 



An expansion of the money-capital arising from the fact 
that in consequence of the expansion of the banking business 
a former private hoard or coin reserve may be converted into 
loanable capital for a short while, does not indicate a growth 
of the productive capital any more than the increasing de- 
posits of the London stock banks, as soon as they began to 
pay interest on deposits. (See the example of Ipswich 
farther along, where in the course of a few years immediately 
preceding 1857 the deposits of the capitalist farmers were 
quadrupled.) So long as the scale of production remains 
the same, this expansion leads only to an abundance of the 
loanable money-capital compared to the productive. Hence 
the rate of interest is low. 

After the process of reproduction has again reached 
that state of prosperity, which precedes that of overexertion, 
the commercial credit once more arrives at a great expansion, 
which has then indeed for its " sound " basis a flow of easy 
returns and more extended production. In this state the rate 
of interest is still low, although it rises above its minimum. 
This is in fact the only time, of which it may be said, that 
a low rate of interest, and consequently a relative abundance 
of loanable capital, coincide with a real expansion of in- 
dustrial capital. The facility and regularity of the returns, 
together with an extensive commercial credit, secures the sup- 
ply of loan capital in spite of the increased demand for it, 



"574 Capitalist Production. 

and prevents the level of the rate of interest from rising. 
Moreover, those knights now appear in large numbers, who 
work without any reserve capital, or even without any capital 
at all and operate wholly on a credit basis. To this is added 
the great expansion of the fixed capital of all forms, and the 
inauguration of vast masses of new enterprises of wide scope. 
The interest now rises to its average level. It arrives once 
more at its maximum, as soon as the new crisis comes in, 
when credit suddenly stops, payments are suspended, the proc- 
ess of reproduction is delayed, and a superabundance of 
industrial capital is unemployed, with the above-mentioned 
exceptions, while there is an almost absolute lack of loan 
capital. 

On the whole, then, the movements of loan capital, as 
expressed in the rate of interest, tend in a direction opposite 
to that of industrial capital. That phase in which a low 
rate of interest rising just above its minimum coincides with 
an " improvement " and a growing confidence after a crisis, 
and particularly' that phase, in which the rate of interest 
reaches its average level, midway between its minimum and 
maximum, are the only two periods in which an abundance 
of loan capital is available simultaneously with a great ex- 
pansion of industrial capital. But at the beginning of the 
industrial cycle a low rate of interest coincides with a con- 
traction, and at the end of an industrial cycle a high rate of 
interest coincides with a superabundance, of industrial capi- 
tal. The low rate of interest, which indicates an " improve- 
ment," shows that commercial credit requires the assistance 
of banking credit but to a slight degree, because it still stands 
on its own legs. 

The industrial cycle is of such a character, that the same 
cycle must periodically reproduce itself, once that the first 
impulse has been given. ^^^ 

''*" [I have already stated in another place, that a change has taken place in the 
character of commercial crises since the last great universal one. The acute form 
of the periodical process, with its former decennial cycle, seems to hav-e given way 
to a more chronic, long drawn, alternation between a relatively short and slight 
business improvement and a relatively long, undecided, depression, both of them 
differently distributed over the various industrial countries. But perhaps it is 
merely a matter of a prolongation of the duration of the cycle. In the childhood 



Money-Capital and Actual Capital. 575 

In the condition of lassitude production sinks below the 
level, which it had reached in the preceding cycle, and for 
which the technical basis has now been laid. During pros- 
perity, the middle period, it continues to develop on this basis. 
In the period of overproduction and swindle it exerts the 
productive forces to the utmost, even beyond the capitalistic 
limits of the process of production. 

That means of payment are scarce during the period of 
crisis, goes without saying. The convertibility of bills of 
exchange has substituted itself for the metamorphosis of com- 
modities themselves, and so much more so at such times, 
as a portion of the firms operates purely on credit. An 
ignorant and mistaken legislation, such as that of 1844-45, 
may intensify a money crisis. But no manner of bank leg- 
islation can abolish a crisis. 

In a system of production, in which the entire connection 
of the process of reproduction rests upon credit, a crisis 
must obviously occur through a tremendous rush for means 
of payment, when credit suddenly ceases and nothing but 
cash payment goes. At first glance, therefore, the whole 
crisis seems to be merely a credit crisis and money crisis. 
And in fact it is but a question of the convertibility of 
bills of exchange into cash money. But the majority of 
these bills represent actual sales and purchases, and it is 

of world commerce, 1815-1847, it can be shown that a crisis occurred about every 
fifth year; from 1847-1867 the cycle is decidedly decennial; is it possible, that we 
are now in the preparatory stage of a new world crash of unparalleled vehemence? 
Many things seem to indicate this. Since the last great universal crisis of 1867 
many profound changes have taken place. The colossal extension of the means of 
transportation and communication — seagoing steamers, railroads, electric telegraphs, 
the Suez Canal — have made a real world market a fact. The former monopoly of 
England in industry has been matched by a number of competing industrial coun- 
tries; infinitely greater and varied fields have been opened in all parts of the 
world for the investment of superfluous European capitals, so that it is far more 
distributed, and local overspeculation may be more easily overcome. By means of 
these things, the old breeding grounds of crises and opportunities for the growth 
of crises have been eliminated or strongly reduced. At the same time competition 
in the internal markets recedes before Kartels and trusts, while it is restricted in 
the international market by protective tariflfs, with which all great industrial coun- 
tries, England excepted, surround themselves. But these protective tariffs are 
nothing but preparations for the ultimate general industrial war, which shall decide 
the supremacy on the world market. Thus every element, which works against a 
repetition of the old crises, carries the germ of a far more tremendous future crisis 
in itself.— F, E.] 



^'/6 Capitalist Production. 

the extension of these far beyond the demands of society 
which is at the bottom of the whole crisis. At the same time 
an enormous quantity of these bills represents mere swindles, 
and this becomes apparent now, when they burst. There 
are furthermore unlucky speculations made with the money 
of other people. Finally there are commodity-capitals, which 
have either become depreciated or unsalable or returns that 
can never more be realized. This entire artificial system of 
forced expansion of the process of reproduction cannot, of 
course, be remedied by having some bank, like the Bank of Eng- 
land, give to the swindlers the needed capital in the shape of 
paper notes and buy up all the depreciated commodities at their 
old nominal values. Moreover, everything appears turned up- 
side down here, since no real prices and their real basis appear 
in this paper world, but only bullion, metal coin, notes, bills of 
exchange, securities. Particularly in the centers, in which the 
whole money business of the country is crowded together, like 
London, this reversion becomes apparent; the entire process 
becomes unintelligible. It is not quite so in the industrial 
centers. 

By the way, we make the following remarks about the 
superabundance of industrial capital, which shows itself 
during crises: The commodity-capital is in itself also a 
money-capital, that is, a definite sum of money expressed in 
the price of the commodities. As a use-value 'it is a definite 
quantity of useful objects, and there is a superfluity of them 
at the time of the crisis. But as a money-capital in itself, 
as a potential money-capital, it is subject to continual ex- 
pansion and contraction. On the eve of a crisis, and during 
its sway, commodity-capital in its capacity as a potential 
money-capital is contracted. It represents less money-capital 
for its owner and his creditors (likewise as a security for 
bills of exchange and loans), than it did at the time when it 
was bought and when the discounts and loans made on it 
were transacted. If this is the meaning of the contention, 
that the money-capital of a country is reduced in times of 
stringency, it is identical with the statement, that the prices 



V - Money-Capital and Actual Capital. 577 

of commodities have fallen. Such a collapse of prices 
merely balances their inflation in preceding periods. 

The incomes of the unproductive classes and of those, who 
live on fixed incomes, remain for the greater part stationary 
during the inflation of prices going hand in hand with an 
overproduction and overspeculation. Hence their consum- 
ing capacity diminishes relatively, and with it their ability to 
reproduce that portion of the total reproduction, which should 
enter normally into consumption. Even though- their de- 
mand should remain nominally the same, it decreases actu- 
ally. 

With reference to the imports and exports we remark, that 
all countries become successively implicated in a crisis, and 
that then it becomes evident, that all of them, with few ex- 
ceptions, have exported and imported too much, so that there 
is a balance of payment against all of them. The trouble, 
therefore, is not with the balance of payment. For instance, 
England suffers from an export of gold. It has imported 
too much. But at the same time all other coimtries are over- 
crowded with English goods. They have also imported too 
much, or too much has been imported into them. (There is, 
indeed, a difference between that country, which exports on 
credit, and those countries, which export little or nothing on 
credit. But in that case, these last countries import on 
credit; and this is not the case only when commodities are 
sent to them on consignment.) The crisis may first break 
out in England, in that country which gives most of the 
credit and takes least of it, because the balance of payment 
due, which must be squared immediately, is against it, even 
though the general balance of trade is for it. This is ex- 
plained partly by the credit which it has granted, partly by 
the mass of capitals loaned to foreign countries, so that a 
large quantity of returns come back to it in the shape of com- 
modities, aside from actual trade returns. (However, the 
crisis broke out sometimes in America, that country in which 
most of the trade and capital credit is taken from England.) 
The crash in England, introduced and accompanied by an ex- 



57^ Capitalist Production. 

port of gold, settles England's balance of payment, partly by 
a bankruptcy of its importers (about which more is said far- 
ther on), partly by throwing off a portion of its commodity- 
capital at cut prices to foreign countries, partly by the sale 
of foreigTi securities, the purchase of English securities, etc. 
Now it is the turn of some other country. The balance of 
payment was momentarily in its favor. But now the time 
normally allowed between the balance of payment and balance 
of trade has been reduced by the crisis or entirely abolished. 
All payments are now supposed to be made immediately. 
The same thing is now repeated here. England now has a 
return of gold, the other country an export of gold. What 
appears in one country as excessive imports, appears in the 
other as excessive exports, and vice versa. But overimports 
and overexports have taken place in all countries (we are not 
alluding now to any crop failures, but to a general crisis) ; 
that is, there has been a general overproduction, promoted by 
credit and the inflation of prices that goes with it. 

In 1857, the crisis broke out in the United States. An ex- 
port of gold from England to America followed. But as 
soon as the inflation in America collapsed, the crisis broke 
out in England and the gold export went from America to 
England. The same took place between England and the 
continent. The balance of payment is in times of general 
crisis against every nation, at least against every commer- 
cially developed nation, but always the one succeeding the 
other, like firing in squads, as soon as the turn of each comes 
for making payments. And once the crisis has broken out, 
say, in England, it compresses the succession of these terms 
of payment into a very short period. It then becomes evident, 
that all these nations have simultaneously overexported (and 
overproduced) and overimported (and overtraded), that 
prices were inflated in all of them, and credit overdrawn. 
And the same collapse follows in all of them. The phenome- 
non of gold exports then shows itself successively in all of 
them, and proves by this very generality, 1), that the gold ex- 
ports are but an evidence of a crisis, not its cause; 2), that 
the succession, in which the gold exports take place in differ- 



Money-Capital and Actual Capital. 579 

ent coTiiitries, indicates only the time when their turn has 
come to settle their affairs, the time when the' crisis seizes 
them and causes an eruption of its latent forces. 

It is characteristic for the English economic writers — ■ and 
the economic literature worth mentioning since 1830 resolves 
itself mainly into a literature on currency, credit, crisis — 
that they look upon the exports of precious metals in times 
of crisis, in spite of the alteration of quotations on bills, 
merely from the standpoint of England, as a purely national 
phenomenon, and completely close their eyes against the fact, 
that all other European banks raise their rate of interest, 
when their own bank raises its in times of crisis, and that, 
when the cry of distress over the exports of gold is raised in 
their country today, it is taken up in America tomorrow and 
in Germany and France the day after. 

In 184Y, " the obligations of England had to be fulfilled " 
[mostly for corn] . " Unfortunately they were mostly ful- 
filled by bankruptcies." [The wealthy England got its 
breath by bankruptcies in its obligations toward the Continent 
and America.] "But so far as they were met by bankrupt- 
cies, they were fulfilled by the export of precious metals." 
(Report of Committee on Bank Acts, 185 Y.) In other words 
so far as a crisis is intensified by bank legislation, this legis- 
lation is a means of cheating the corn-exporting countries in 
periods of famine, robbing them first of their corn and then 
of the money for the corn. A prohibition of the export of 
corn in such periods and in such countries, which are them- 
selves suffering more or less from stringencies, is, therefore, 
a very rational measure to thwart the above plan of the Bank 
of England for " meeting obligations on corn imports by 
bankruptcies." It is in that case much better that the com 
producers and speculators should lose a portion of their profit 
for the good of their own country than their capital for the 
good of England. 

It follows from the above, that the commodity-capital 
largely loses its capacity of representing potential money- 
capital during a crisis, and during periods of business de- 
pression in general. The same is true of fictitious capital, 



580 Capitalist Production. 

interest-bearing papers, so far as they circulate in tlie stock 
exchanges as money-capital. Their price falls with a rise of 
interest. It falls furthermore through a general lack of credit, 
which compels their o^vner to throw them in masses on the 
market, in order to secure money. It falls, finally, in the 
case of stocks, partly in consequence of the spurious char- 
acter of the enterprises which they represent, partly in con- 
sequence of a decrease of the revenues, for which they con- 
stitute drafts. The fictitious capital is enormously reduced 
in times of crisis, and with it the power of its owners to loan 
money on it in the market. However, the reduction of the 
money denomination of these securities in the stock exchange 
quotations has nothing to do with the actual capital which 
they represent, but very much indeed with the solvency of 
their owners. 



CHAPTEK XXXI. 



MONEY-CAPITAL AND ACTUAL CAPITAL. II. 

(Continued.) 

We have not yet come to the end of the question, to what 
extent the accumulation of capital in the form of loanable 
money-capital coincides with the actual accumulation, the 
expansion of the process of reproduction. 

The conversion of money into loanable money-capital is a 
far simpler matter than the transformation of money into 
productive capital. But two things should be distinguished 
here. 

1 ) . The mere conversion of money into money-capital ; 

2.) The conversion of capital or revenue into money, which 
is turned into loan capital. 

It is only the last named point, which can imply a posi- 
tive accumulation of loan capital connected with an actual 
accumulation of industrial capital. 



Money-Capital and Actual Capital. 581 

1. Conversion of Money into Loan Capital. 

We have already seen, that an accumulation of loan cap- 
ital to the point of oversaturation may take place, which is 
connected with productive accumulation only to the extent 
that it stands in the opposite proportion to it. This is the 
case in two phases of the industrial cycle, namely first during 
the time, when the industrial capital in both its forms of 
productive and commodity-capital is contracted, that is, at the 
beginning of the cycle after a crisis ; and secondly at the time, 
when the improvement begins without, however, demanding 
as yet very much bank credit for commercial capital. In 
the first case the money-capital, which was formerly employed 
in production and commerce, appears as unemployed loan 
capital; in the second case it appears employed to an increas- 
ing degree, but at a very low rate of interest, because then 
the industrial and commercial capitalist prescribes the con- 
ditions for the money capitalist. The superabundance of 
loan capital expresses in the first case a stagnation of indus- 
trial capital, and in the second a relative independence of 
commercial credit from banking credit, based on the fluidity 
of the returns, a short term of credit, and a preponderance 
of operations with one's own capital. The speculators, who 
count on the credit capital of other people, have not yet ap- 
peared upon the field; the people, who work with their own 
capital, are still far removed from an approximation to oper- 
ations based purely on credit. In the first named phase the 
superfluity of loan capital is the direct opposite of the ex- 
pression of actual accumulation. In the second' phase it 
coincides with a renewed expansion of the process of repro- 
duction, accompanies it, but is not its cause. The super- 
abundance of loan capital is already decreasing, is only a 
relative one compared to the demand. In both cases the ex- 
pansion of the actual process of accumulation is promoted 
by it, since the low interest, which coincides in the first case 
with low prices, in the second with slowly rising prices, in- 
creases that portion of the profit, which is transformed into 
profits of enterprise. This takes place still more when in- 



582 Capitalist Production. 

terest rises to its average level during the height of the period 
of prosperity, when it has grown, but not in the same pro- 
portion as profit. 

We have seen, on the other hand, that an accumulation of 
loan capital may take place without any actual accumulation, 
by mere technical means, such as an expansion and concen- 
tration of the banking system, a saving in the currency re- 
serve, or in the reserve fund of private means of payment, 
which are then always converted into loan capital for a short 
time. Although this loan capital, which is also called float- 
ing capital for this reason, retains the form of loan capital 
only for short periods (and discount is supposed to be given 
for short periods only), it flows continually back and forth. 
If one withdraws it, another brings it along. The mass of 
loanable money-capital grows thus quite independently of the 
actual accumulation (we speak here quite generally of short- 
lived loans on bills and deposits, not of loans for a number 
of years). 

B. C. 1857. Question 501. " What do you mean by float- 
ing capital ? " — Answer of Mr. Wegmelin, Governor of the 
Bank of England : " It is capital available for money loans 
on short time." . . . (502) ISTotes of the Bank of 
England ... of the provincial banks, and the amount 
of money existing in the country. — Question : "It does not 
seem, from the testimony submitted to this Committee, pro- 
vided you mean by floating capital the active circulation " 
[of the notes of the Bank of England] " as though there 
were any very considerable fluctuation in this active circula- 
tion ? " [But there is a great difference, whether this active 
circulation is loaned by the money lender or advanced by the 
reproductive capitalist himself.] Weguelin's answer: "I 
include in the floating capital the reserves of the bankers, in 
which there is considerable fluctuation." — That is to say, 
there is considerable fluctuation in that portion of the de- 
posits, which the bankers have not loaned out again, but 
which figures as their reserve, and for the greater part also 
as the reserve of the Bank of England, where they are de- 
posited. Finally the same gentleman says that floating cap- 



Money-Capital and Actual Capital. 583 

ital is bullion, that is, bullion and hard cash (503). — It is 
truly wonderful, what a different meaning and different fonn 
all economic categories receive in this credit jargon of the 
money market. Floating capital is there the term for cir- 
culating capital, which is, of course, quite another thing, 
money is capital, bullion is capital, bank notes are currency, 
capital is a commodity, debts are commodities, and fixed cap- 
ital is money invested in papers that are salable with diffi- 
culty ! 

" The stock banks of London . . . have increased 
their deposits from 8,850,774 pounds sterling in 1847 to 43,- 
100,724 pounds sterling, in 1857. . . . The evidences 
and testimonies placed before this Committee permit the con- 
clusion, that a great part of this immense amount is derived 
from sources, which were formerly not available for this pur- 
pose; and that the custom of opening an account with the 
banker and depositing money with him has extended to numer- 
ous classes, that formerly did not invest their capital ( !) in 
this manner. Mr. Eodwell, President of the Association of 
Provincial Private Banks " [distingmished from stock banks] 
" and delegated by it to testify before this Committee, states 
that in the region of Ipswich this custom has quadrupled of 
late among the capitalist farmers and small business men 
of that district; that nearly all farmers, even those paying 
only 50 pounds sterling of rent annually, now have deposits 
in banks. The mass of these deposits, of course, finds its 
way to employment in business, and gravitates particularly 
toward London, the center of commercial activity, where they 
are first employed in discounting bills and in making other 
loans to the customers of London bankers. But a large por- 
tion of them^ which the bankers themselves cannot use im- 
mediately, pass into the hands of bill brokers, who give to 
the bankers commercial bills in their stead, which they have 
already discounted once before for people in London and in 
the provinces." (B. C. 1858, p. 8.) 

In giving loans to the bill broker on bills which this broker 
has discounted once, the banker practically discounts them 
again; but in reality very many of these bills have already 



584 Capitalist Production. 

been rediscoimted by the bill broker, and lie rediscounts new 
bills with the very same money, with which the banker re- 
discounts the bills of the bill broker. What this leads to is 
shown by the following passage : " Extensive fictitious credits 
have been created by accommodation bills and blank credits, 
and this was very much facilitated by the procedure of the 
provincial stock banks, that discounted such bills and then 
had them rediscounted by bill brokers in the London market, 
and at that solely on the strength of the bank's credit, with- 
out regard to the further quality of the bills." (L. c.) 

Concerning this rediscounting and the help which these 
purely technical increase of loanable capital lends to credit 
swindlers, the following extract from the ''Economist " is in- 
structive : " During many years capital " [namely loanable 
money-capital] " accumulated in some districts of the coun- 
try more rapidly than it could be employed, while in others 
the means of its investment grew faster than the capital it- 
self. While the bankers in the agricultural districts thus 
found no. opportunity to invest their deposits profitably and 
safely in their own region, those in the industrial districts 
and the commercial cities had more demand for capital than 
they could supply. The effect of these different conditions in 
the various districts has led in recent years to the rise and 
startlingly rapid extension of a new class of firms engaged 
in the distribution of capital, who, although generally called 
bill brokers, are in reality bankers on the very largest scale. 
The business of these firms is to assume, for definitely agreed 
periods and at definitely fixed interest, the surplus-capital 
of the banks in districts in which it could not be employed, 
just like the temporarily idle funds of stock companies and 
great commercial firms, and to loan this money at a higher 
rate of interest to the banks in districts where capital is more 
in demand; as a rule by rediscounting the bills of their cus- 
tomers. ... In this way Lombard Street became the 
great center, in which the transfer of unemployed capital 
takes place from one part of the country, where it cannot be 
usefully employed, to another where it is in demand ; and 
this applies to the different parts of the country as well as to 



Money-Capital and Actual Capital. 5^5 

similarly situated individuals. Originally these transac- 
tions were almost exclusively limited to borrowing and lend- 
ing on collateral acceptable to banks. But in proportion as 
the capital of the country increased rapidly and was more 
and more economised by the erection of banks, the funds at 
the disposal of discounting firms became so large that they 
undertook to make advances, first on dock warrants (storage 
bills on commodities in docks) and then also on bills of lad- 
ing representing products that had not even arrived, although 
sometimes, if not regularly, bills of exchange had already 
been drawn against them at the produce brokers. This prac- 
tice soon changed the entire character of the English business. 
The facilities thus offered by Lombard Street gave to the pro- 
duce brokers in Mincing Lane a greatly enforced position; 
these gave in turn the entire advantage to the importing mer- 
chants; these last took so much advantage of it that, whereas 
25 years previous a taking of credit on his bills of lading or 
even his dock warrants would have ruined the credit of a 
merchant, this practice became so general, that it may be 
considered as the rule, and no longer, as 25 years ago, as a 
rare exception. Yea, this system has been extended so far, 
that large sums have been taken up in Lombard Street on 
bills of exchange drawn, against the still groiving crops of dis- 
tant colonies. The result of such accommodations was, that 
the import merchants expanded their foreign transactions and 
tied up their floating capital, with which they had hitherto 
carried on their business, in the most execrable of invest- 
ments, colonial estates, over which they could exert little or 
no control. Thus we see the direct concatenation of credits. 
The capital of the country, which is collected in our agricul- 
tural districts, is laid down in small amounts as deposits 
in country banks, and centralised for investment in Lombard 
Street. But it has been utilised, first, for the extension of 
business in our mining and industrial districts by rediscount- 
ing bills on banks there ; furthermore also for granting greater 
accommodations to importers of foreign products by loans on 
warrants and bills of lading, whereby the ' legitimate ' mer- 
chants' capital of firms in foreign and colonial business was 



586 Capitalist Production. 

released and made available for the most abominable kinds 
of investment in transmarine estates." {Economist^ 1847, 
p. 1334.) 

This is the " beautiful concatenation of credits." The rural 
depositor imagines to deposit only with his banker, and im- 
agines furthermore that, when his banker lends to others, it 
is done to private persons whom he knows. He has not the 
slightest suspicion, that this banker places his deposit at the 
disposal of some London bill broker, over whose operations 
neither of them have the slightest control. 

How great public enterprises, such as railroads, may mo- 
mentarily increase the loan capital, owing to the circumstance 
that the deposited amounts always remain at the disposal of 
the bankers for a certain time until they are really used, we 
have already seen. 



By the way, the mass of the loan capital is quite different 
from the quantity of the currency. By the quantity of the 
currency we mean here the sum of all bank notes and all hard 
cash existing and circulating in a country, including the bul- 
lion of precious metals. One portion of this quantity forms 
the reserves of the banks, an ever changing magnitude. 

" On JSTovember 12, 1857 " [the date of the suspension of 
the Bank Acts of 1844], "the total reserve of the Bank of 
England, including all branch banks, amounted to only 580,- 
751 pounds sterling; the sum of the deposits amounted at the 
same time to 22,500,000 pounds sterling, of which nearly 
6,500,000 pounds sterling belonged to London bankers." 
{B. C, 1858, p. LVIL) 

The variations of the rate of interest (aside from those 
occurring in long periods, or from the difference of the rate 
of interest in different countries ; the first named are condi- 
tioned in variations of the general rate of profit, the last 
named on differences in the rates of profit and on the develop- 
ment of credit) depend upon the supply of loan capital (all 
other circumstances, state of confidence, etc., being equal), 
that is, of the capital loaned in the form of money, hard cash, 



Money-Capital and Actual Capital. 587 

and notes ; this is distinguished from industrial capital, which 
in the shape of commodities is loaned by means of commercial 
credit among the agents of reproduction themselves. 

However, the mass of this loanable capital is different from 
and independent of the mass of the circulating money. 

If 20 pounds sterling were loaned five times per day, a 
money-capital of 100 pounds sterling would be loaned, and 
this would imply at the same time that these 20 pounds ster- 
ling would besides have to serve at least four times as means 
of purchase or payment; for if this were to take place with- 
out the intervention of purchase and payment, so that this 
sum would not represent at least four times the converted 
form of capital (commodities including labor-power), it 
would not be a capital of 100 pounds sterling, but only five 
claims of 20 pounds sterling each. 

In countries with a developed credit we may assume, that 
all money-capital available for loaning exists in the form of 
deposits with banks and money lenders. This holds good at 
least for the business in a general way. Moreover, in times 
of good business, before speculation proper breaks loose, when 
credit is easy and confidence growing, the greater portion of 
the functions of circulation is settled by a simple transfer of 
credit, without the intervention of metal or paper money. 

The mere possibility of large amounts of deposits with a 
relatively small quantity of currency, depends solely: 

1) Upon the number of purchases and sales, which the 
same piece of money performs; 

2) The number of its return wanderings, in which it goes. 
back to the banks as a deposit, so that its repeated function 
as a means of payment and purchase is promoted through its 
renewed conversion into a deposit. For instance, a small 
dealer deposits weekly with his banker 100 pounds sterling 
in money; the banker pays with this a portion of a deposit 
to a manufacturer; this man in his turn pays it over to some 
laborers; these pay the small dealer with it, who deposits it 
again in the bank. The 100 pounds sterling deposited by 
this dealer have, therefore, served, first, in paying to a man- 
ufacturer a portion of his deposit; secondly, in paying some 



588 Capitalist Production. 

laborers; thirdly, in paying the dealer himself; fourthly, in 
depositing another portion of the money-capital of the same 
small dealer; for at the end of twenty weeks, provided that 
he does not have to draw any of his money out of the bank, he 
would have deposited 2,000 pounds sterling in the bank by 
means of the same 100 pounds sterling. 

To what extent this money-capital is unemployed, is shown 
only in the inward and outward movements of the banking 
reserves. Therefore Mr. Weguelin, Governor of the Bank 
of England in 1857, concludes that the gold of the Bank of 
England is the "only" reserve capital. — 1258. "In my 
opinion the rate of discount is actually determined by the 
amount of unemployed capital existing in the country. The 
amount of unemployed capital is represented by the reserve 
of the Bank of England, which is in fact a gold reserve. 
Hence, when gold is exported, the amount of unemployed 
capital in the country is diminished and the value of the re- 
maining parts is thereby increased." — 1364. " The gold 
reserve of the Bank of England is in fact the central reserve, 
or the cash fund, on the basis of which the entire business 
of the country is carried on, . . . It is this fund, or 
this reservoir, upon which the effect of the foreign quotations 
on 'Change always faU." {Report on Bank Acts, 1857.) 



Eor the accumulation of the actual, this is, productive and 
commodity-capital, the statistics of exports and imports fur- 
nish a measure. These show always that during the decen- 
nial cycles of the period of development of British industry 
from 1815 to 1870 the maximum of the last time of prosper- 
ity always reappears before the crisis, whereupon it rises to 
a new and far higher maximum. 

The actual or declared value of the exported products of 
Great Britain and Ireland in the prosperous year 1824 was 
40,396,300 pounds sterling. The amount of the exports falls 
thereupon with the crisis of 1825 below this sum and fluctu- 
ates between 35 and 39 millions annually. With the return 



Money-Capital and Actual Capital. 5B9 

of prosperity in 1834 the amount of exports rises above the 
former maximum to 41,649,191 pounds sterling, and reaches 
in 1836 the new maximum of 53,368,571 pounds sterling. 
In 1837 it falls again to 42 millions, so that the new mini- 
mum stands higher than the old maximum, and fluctuates 
thereupon between 50 and 53 millions. The return of pros- 
perity lifts the amount of exports in 1844 to 58,500,000 
pounds sterling, a rise far above the maximum of 1836. In 
1845 it reaches 60,111,082 pounds sterling; then it falls to 
something over 57 millions in 1846, reaches in 1847 almost 
59 millions, in 1848 about 53 millions, rises in 1849 to 63,- 
500,000, in 1853 to nearly 99 millions, in 1854 to 97 mil- 
lions, in 1855 to 94,500,000, in 1856 almost 116 millions, 
and reaches a maximum of 122 millions in 1857. It falls 
in 1858 to 116 millions, rises already in 1859 to 130 mil- 
lions, in 1860 to nearly 136 millions, in 1861 only 125 mil- 
lions (the new minimum is here again higher than the for- 
mer maximum), in 1863 to 146,500,000. 

Of course, the same thing might be demonstrated in the 
case of imports, which show the extension of the market ; 
but we are here concerned only in the scale of production. 
[Of course, this holds good of England only for the time of 
its actual industrial monopoly; but it applies quite generally 
to the whole complex of countries with modern great indus- 
tries, so long as the world market is still expanding. — F. E. ] 

Conversion of Capital or Revenue into Money that is Trans- 
formed into Loam. Capital. 

We will consider the accumulation of money-capital here 
in so far as it is not an expression, either of a relaxation in 
the flow of credit, or of greater economy, whether it be an 
economy in the actually circulating medium or in the reserve 
capital of the agents engaged in reproduction. 

Aside from these two cases, an accumulation of money-cap- 
ital may arise through extraordinary imports of gold, such 
as those of 1852 and 1853 resulting from the output of the 
new Australian and Californian mines. This gold was de- 



590 Capitalist Production. 

posited in the Bank of England. The depositors took notes 
instead, which they did not at once redeposit in banks. By 
this means the circulating medium was unusually increased. 
(Testimony of Weguelin, B. C. 1857, 'No. 1329.) 

The Bank strove to utilise these deposits by lowering its 
discount to 2%. The mass of gold accumulated in the Bank 
rose during six months of 1853 to 22 or 23 millions. 

The accumulation of all capitalists lending money natu- 
rally takes place always in the form of direct money, whereas 
we have seen that the actual accumulation of industrial cap- 
italists is accomplished, as a rule, by an increase of the ele- 
ments of reproductive capital itself. Hence the development 
of the credit system and the enormous concentration of the 
money-lending business into the hands of great banks must 
by itself alone accelerate the accumulation of loanable cap- 
ital, as a form distinguished from actual accumulation. This 
rapid development of loan capital is, therefore, a result of 
actual accumulation, for it is a consequence of the develop- 
ment of the process of reproduction, and the profit that forms 
the source of accumulation for these money-capitalists is but 
a deduction from the surplus-value, which the reproductive 
capitalists filch from production (and it is at the same time 
a portion of the interest on the savings of others). The loan 
capital accumulates at the expense of both the industrial and 
commercial capitalists. We have seen that in the unfavor- 
able phases of the 'industrial cycle the rate of interest may 
rise so high, that it temporarily devours the whole profit in 
particularly handicapped lines of business. At the same time 
the prices of the public securities and other securities also 
fall. It is at such times that the money-capitalists buy up 
these depreciated papers in masses, which soon regain their 
former level in later phases or rise above it. Then they are 
sold again and a portion of the money-capital of the public 
appropriated through them. That portion, which is not sold 
yields a higher interest, because it was bought below price. 
But the money-capitalists convert all profits made by them 
and reconverted into capital first into loanable money-cap- 
ital. An accumulation of such money-capital, as distin- 



Money-Capital and Actual Capital. 591 

guished from the actual accumulation that is its motlier, 
takes place, obviously, even if we consider only the money- 
capitalists, bankers, etc., by themselves, that is, an accumu- 
lation of this particular class of capitalists. And it must 
grow with every expansion of the credit system such as goes 
with the expansion of the process of reproduction. 

If the rate of interest is low, then the depreciation of the 
money-capital falls principally upon the depositors, not upon 
the banks. Before the development of stock banks three- 
fourths of all deposits rested in the English banks without 
returning any interest. If interest is now paid on them, it 
amounts to at least 1% less than the current rate of interest. 

As for the money accumulation of the other classes of cap- 
italists, we leave aside that portion of it, which is invested 
in interest-bearing papers and accumulates in this form. We 
consider merely that portion, which is thrown upon the mar- 
ket as loanable money-capital. 

In the first place, we have here that portion of the profit, 
which is not spent as revenue, but intended for accumulation, 
yet at the same time not immediately of any use for the in- 
dustrial capitalists in their own business. This profit exists 
originally in the form of commodity-capital, a part of whose 
value it constitutes, and is realised with it in money. ISTow, 
if it is not reconverted into the productive elements of com- 
modity-capital (we leave out of consideration for the pres- 
ent the merchant, whom we shall have to discuss separately), 
then it must remain for a while in the form of money. This 
mass increases with the mass of capital itself, even when the 
rate of profit declines. That portion, which is to be spent 
as revenue, is gradually consumed, but forms in the mean- 
time a loan capital of the banker in the form of a deposit. 
Thus even the growth of that portion of profit, which is spent 
as revenue, expresses itself in a gradual and continually re- 
peated accumulation of loan capital. The same is true of 
that other portion, which is intended for accumulation. With 
the development of the credit system, then, and its organisa- 
tion, even the increase of revenue, that is, of the consump- 
tion of the industrial and commercial capitalists, expresses 



592 Capitalist Production. 

itself as an accumulation of loan capital, xind this holds 
good of all revenues which are consumed gradually, in other 
words, of ground rent, wages in their higher form, incomes 
of improductive classes, etc. All of them assume for a cer- 
tain time the form of a money revenue and are, therefore, 
convertible into deposits and thus into loan capital. All rev- 
enue, whether it be intended for consumption or accumula- 
tion, so long as it exists in some form of money, is a part of 
the value of commodity-capital transformed into money, and 
is, for this reason, an expression and result of the actual ac- 
cumulation, but not the productive capital itself. When a 
spinner has exchanged his yarn for cotton, while he has ex- 
changed that portion, which forms his revenue, for money, 
then the real existence of his industrial capital is the yarn, 
which has passed into the hands of the weaver or, perhaps, 
of some private consumer, and this yarn is the existence of 
both the capital-value and surplus-value contained in it, 
whether it be intended for reproduction or consumption. The 
magnitude of the surplus-value transformed into money de- 
pends upon the magnitude of the surplus-value contained in 
the yarn. But as soon as it has been transformed into money, 
this money is but the existence of the value of this surplus- 
value. And as such it becomes an element of loan capital. 
To this end nothing more is required than that it should be 
transformed into a deposit, if it has not been loaned out by 
its owner. But in order to be reconverted into productive 
capital, it must have reached a certain minimum limit. 



Money-Capital and Actual Capital. 593 



CHAPTEE XXXII. 

MONEY-CAPITAL AND ACTUAL CAPITAL. III. 

(Concluded.) 

The mass of the money thus reconverted into capital is a 
result of the voluminous process of reproduction, but consid- 
ered by itself, as loanable money-capital, it is not itself a 
mass of reproductive capital. 

The most important point of our presentation so far is, 
that the expansion of that part of the revenue which is in- 
tended for consumption (leaving out of consideration the 
laborer, because his revenue is equal to the variable capital) 
represents itself in the first instance as an accumulation of 
money-capital. The accumulation of money-capital, there- 
fore, presents a factor, which is essentially different from the 
actual accumulation of industrial capital; for that portion of 
the annual product, which is intended for consumption, does 
not become capital in any way. One portion of it replaces 
capital, namely the constant capital of the producers of means 
of consumption, but to the extent that it is actually converted 
into capital, it exists in the natural form of the revenue of 
the producers of this constant capital. The same money, 
which represents the revenue and serves merely for the pro- 
motion of consumption, is regularly transformed into loan- 
able money-capital, for a certain time. So far as this money 
represents wages, it is at the same time the money-form of 
the variable capital; and so far as it replaces the constant 
capital of the producers of means of consumption, it is the 
money-form temporarily assumed by their constant capital 
and serves for the purchase of the natural elements of the 
constant capital to be replaced by them. IsFeither in the one 
nor in the other form does it express in itself any accumula- 
tion, although its mass increases with the volume of the proo- 



594 Capitalist Production. 

ess of reproduction. But it performs temporarily the func- 
tion of loanable money, of money-capital. In this respect 
the accumulation of money-capital must reflect a greater ac- 
cumulation of capital than is actually existing, owing to the 
fact that the extension of individual consumption, being pro- 
moted by money, appears as an accumulation of money-cap- 
ital, whereby it furnishes the money-form for the actual 
accumulation of money opening new investments of capital. 

The accumulation of money, then, expresses in part noth- 
ing else but the fact that all money, into which the industrial 
capital is transformed in the course of its cycle, assumes the 
form, not of money advanced by the reproductive capitalists, 
but of money horroived by them; so that indeed the advance 
of money necessary in the process of reproduction appears as 
an advance of borrowed money. On the basis of commercial 
credit one capitalist loans indeed to another the money re- 
quired for the process of reproduction. But this assumes 
now the form of a transaction, in which the banker, who re- 
ceives the money as a loan from one portion of the reproduc- 
tive capitalists, lends it to another portion of these reproduc- 
tive capitalists, so that the banker appears in the role of a 
dispenser of blessings; at the same time the disposition of 
this capital drifts wholly into the hands of the banker in his 
capacity as a middleman. 

A few special forms of accumulation of money-capital still 
remain to be mentioned. Capital is released, for instance, 
by a fall in the price of the elements of production, raw ma- 
terials, etc. If the industrial capitalist cannot expand his 
process of reproduction immediately, then a portion of his 
money-capital is expelled from the cycle as superfluous and 
converted into loanable money-capital. In the second place, 
capital in the form of money is released especially by the 
merchant, whenever any interruption of his business takes 
place. If the merchant has disposed of a series of transac- 
tions and cannot begin a new series on account of such inter- 
ruptions until later, then his realised money represents for 
him but a hoard, superfluous capital. But at the same time 
it represents directly an accumulation of loanable money- 



Money-Capital and Aetna! Capital. 595 

capital. In the first case, the accuniTilation of money-capital 
expresses a repetition of the process of reproduction under 
more favorable conditions, an actual release of a portion of 
formerly tied up capital, in other words, an opportunity for 
expanding the process of reproduction with the same amount 
of money. But in the other case it expresses merely an in- 
terruption in the flow of transactions. However, in both 
cases it is converted into loanable money-capital, represents 
its accumulation, influences equally the money-market and 
the rate of interest, although it expresses a promotion of the 
accumulation in the actual process in one case and its ob- 
struction in the other. Finally an accumulation of money- 
capital is brought about by that section of people, who have 
made their little pile and have withdrawn from reproduction. 
In proportion as more profits are made in the course of the 
industrial cycle, their number increases. In their case the 
accumulation of loanable money-capital expresses on the one 
hand an actual accumulation (considering its relative vol- 
ume), and on the other hand the extent of the transformation 
of industrial capitalists into mere money-capitalists. 

As for the other portion of profit, which is not intended to 
be consumed as revenue, it is converted into money-capital 
only when it is not immediately able to find a place for in- 
vestment in the expansion of the productive sphere in which 
it has been made. This may be due to two causes. Either 
the sphere of production may be saturated with capital. Or 
it may be because accumulation must first have reached a cer- 
tain volume, before it can serve as capital, according to the 
proportions of the investment of new capital required in this 
particular sphere. Hence it is converted for a while into 
loanable money-capital and serves in the expansion of produc- 
tion in other spheres. Assuming all other circumstances to 
remain unaltered, the mass of profits required for reconver- 
sion into capital will depend on the mass of profits made and 
thus on the extension of the process of reproduction itself. 
But if this new accumulation meets with difiiculties in its 
employment, through a lack of spheres for investment, due to 
the overcrowding of the lines of production and an oversupply 



596 Capitalist Production. 

of loan capital, then such a plethora of loanable monej-cap- 
ital proves merely that capitalist production has its limits. 
The subsequent swindle with credit proves, that no positive 
obstacle stands in the way of the employment of this super- 
fluous capital. The obstacle is merely one immanent in its 
laws of self-expansion, namely the limits in which capital can 
expand itself as such. A plethora of money-capital does not 
necessarily indicate an overproduction, nor even a lack of 
spheres of investment for capital. 

The accumulation of loan-capital consists simply in the 
fact that money is precipitated as loanable money. This proc- 
ess is very different from an actual transformation into cap- 
ital; it is merely the accumulation of money in a form, in 
which it may be invested as capital. But this accumulation 
may, as we have shown, indicate facts, which are greatly dif- 
ferent from actual accumulation. So long as actual accumu- 
lation is continually expanding, this extended accumulation 
of money-capital may be partly its result, partly the result of 
circumstances, which accompany it but are quite different 
from it, partly also the result of impediments to actual accu- 
mulation. Since accumulation of loan-capital is swelled by 
such circumstances, which are independent of actual accumu- 
lation but nevertheless accompany it, there must be a plethora 
of money-capital in definite phases of the cycle for this rea- 
son alone, if for no other, and this plethora must develop with 
the organisation of credit. And simultaneously with it must 
also develop the necessity of driving the process of produc- 
tion beyond its capitalistic limits, by overproduction, exces- 
sive commerce, extreme credit. And this must take place in 
forms that call forth a reaction. 

So far as accumulation of money-capital from ground rent, 
wages, etc., is concerned, it is superfluous to discuss that here. 
Only one thing must be mentioned, namely that the business 
of actual saving and abstinence (by people forming hoards), 
to the extent that it furnishes elements of accumulation, is 
left in the division of labor, which comes wath the progress of 
capitalist production, to those who receive the smallest share 
of such elements, and who frequently enough lose even their 



Money-Capital and Actual Capital. 597 

savings, as do the laborers when banks fail. On the one 
hand the capital of the industrial capitalist is not " saved " 
by himself, but he has command of the savings of others in 
proportion to the magnitude of his capital ; on the other hand 
the money-capitalist makes of the savings of others his own 
capital, and of the credit, which the reproductive capitalists 
give to one another, and which the public gives to them, a 
source for enriching himself. The last illusion of the cap- 
italist system, to the effect that capital is the fruit of ones own 
labor and saving, is thereby destroyed. ISTot only does profit 
consist of the appropriation of other people's labor, but 
the capital, with which this labor of others is set in motion 
and exploited, consists of other people's property, which the 
money-capitalist places at the disposal of the industrial cap- 
italist, at the same time exploiting the latter in his turn. 

A few remarks remain to be made about credit-capital. 

How often the same piece of money may figure as a loan 
capital, depends, as we have previously indicated. 

1) On the question, how often it realises the values of 
commodities by sale or purchase, thereby transferring capital, 
and furthermore 'on the question, how oftpn it realises rev- 
enue. How often it gets into other hands as a realised value, 
either of capital or of revenue, depends, therefore, obviously, 
upon the volume and mass of the actual transactions ; 

2) On the economy of payments and on the development 
and organisation of the credit-system ; 

3) On the concatenation and velocity of action of the 
credits, so that a deposit set down at one point starts off im- 
mediately as a loan at another. 

Even assuming that the form, in which loan capital exists, 
is merely that of actual money, of gold or silver, of that com- 
modity whose substance serves as a measure of value, a large 
portion of this money-capital is necessarily purely fictitious, 
that is, a title to some value just as the tokens of value. So 
far as money functions in the cycle of capital, it forms indeed 
for the moment a money-capital ; but it does not convert itself 
into loanable money-capital ; it is rather exchanged for the 
elements of productive capital, or paid out as a medium of 



598 Capitalist Production. 

circulation in the realisation of revenue, and cannot, there- 
fore, convert itself into loan capital for its owner. But so 
far as it is converted into loan capital, and the same money 
repeatedly represents loan capital, it is evident that it exists 
only at one point in the form of metallic money ; at all other 
points it exists only in the form of titles on capital. The ac- 
cumulation of these titles, according to our analysis, arises 
from the actual accumulation, that is, from the transforma- 
tion of the values of commodity-capital, etc., into money ; but 
nevertheless the accumulation of these titles as such differs 
from the actual accumulation, from which it arises, and from 
the future accumulation (the new process of produc- 
tion), which is promoted by the loaning of this money. 

In the first instance loan capital exists always in the form of 
money, ^°^ later as a title on money, since the money, in which 
it originally existed, is now held in the hand of the borrower 
as actual money. For the lender it has been transformed 
into a title on money, a title of ownership. The same mass 
of actual money may, therefore, represent very different 
masses of money-capital. Mere money, whether it represent 

*"* B. A. 1857. Testimony of Twells, banker. 4516. " As a banker, do you deal in 
capital or in money?" — "We deal in money." — -4517. "How are the deposits 
paid into your bank?" — '"In money." — 4518. "How are they paid out?" — "In 
money." — "Might it be said, then, that they are anything else but money?" — 
" No." 

Overstone (see chapter XXVI) tangles himself up continually between " capital " 
and " money." Value of money signifies with him also interest, in so far as it is 
determined by the mass of money; value of capital is supposed to be interest, 
so far as it is determined by the demand for productive capital and the profit made 
by it. He says, 4140. " The use of the term capital is very dangerous." — 4148. 
" The gold exports from England are a reduction of the quantity of money in the 
country, and this must naturally eause an increased demand in the money-market 
in general " [but not in the capital-market, according to this] — 4112. " In pro- 
portion as money leaves the country its quantity in the country is dimin- 
ished. This diminution of the quantity remaining in the country creates 
an increased value of this money " [this signifies originally in his theory an in,- 
crease in the value of money as money through a contraction of the currency, 
as compared to the values of commodities; in other words, an increase in the value 
of money is the same as a fall in the value of commodities. But since meanwhile 
even he has been convinced beyond peradventure, that the mass of the circulating 
money does not determine prices, it is now the contraction of money as a medium 
of circulation, which is supposed to raise its value as interest bearing capital, and 
thus the rate of interest]. " And this increased value of the still remaining 
money checks the export and continues, until it has brought back as much money 
as is necessary to restore the equilibrium." — A continuation of Overstone's con- 
tradictions follows later. 



Money-Capital and Actual Capital. 599 

realised capital or realised revenue, becomes a loan capital 
through, the simple act of loaning, by its conversion into a 
deposit, if we look upon the general form under a developed 
credit system. The deposit is a money-capital for the de- 
positor. But in the hands of the banker it may be only a po- 
tential money-capital, which lies fallow in his strongbox in- 
stead of tliat of its owner. ^'^^ 

With the growth of material wealth grows the class of 
money-capitalists; on one side the number and the wealth of 
retiring capitalists living on their incomes increases; on the 
other hand the development of the credit system is promoted, 
and with it the number of bankers, money lenders, financiers, 
etc. 

With the development of the available money-capital grows 
also the mass of interest-bearing papers, government bonds, 
stocks, etc., as we have shown previously. At the same time 
grows also the demand for available money-capital, since the 

lo^At this point the confusion starts in to the effect that both of these 
things are " money," namely the deposit as a claim to a payment from the 
banker, and the deposited money in the hands of the banker. Banker 
Twells, before the Committee on Bank Acts of 1857, takes the following ex- 
ample: "I start in business with 10,000 pounds sterling. With 5000 pounds 
sterling I buy commodities and place them in my stock. The other 5000 pounds 
sterling I deposit with some banker, in order to draw upon them as I need them. 
But I still consider the total as my capital, although 5000 pounds sterling exist in 
the form of a deposit or money." (4528) — This gives rise to the following nice 
debate. — 4531. " Well, you have given your 5000 pounds sterling in bank notes 
to somebody else " — " Yes, Sir." — 4532. " Then he has 5000 pounds sterling 
in deposits?" — "Yes, Sir." — 4533. "And you have 5000 pounds sterling in 
deposits?" — "Quite right." — 4534. "He has 5000 pounds sterling in money, 
and you have 5000 pounds sterling in money?" — "Yes, Sir." — 4535. "But it 
is ultimately nothing but money? " — " No, Sir." This confusion is due, partly to 
the circumstance, that A, who has deposited 5000 pounds sterling, can draw on 
them and dispose of them as though he still had them. To that extent they serve 
him as a potential capital. In all cases, in which he draws on them, he destroys 
his deposit to that extent. If he draws out real money, and his own money has 
already been loaned to some one else, he is not paid with his own money, but with 
that of some other depositor. If he pays a debt to B with a check on his banker, 
and if banker of A has also a check on the banker of B, so that the two bankers 
merely exchange checks, then the money deposited by A has performed the func- 
tion of money twice; first, in the hands of him who received the money deposited 
by A; secondly, in the hands of A himself. In this second function it is a 
balancing of claims of indebtedness (the claim of A on his banker, and the claim 
of this banker on the banker of B) without the intervention of money. Here the 
deposit acts twice as money, namely once as real money, and then as a claim on 
money. Mere titles to money may take the place of money only by a balancing of 
claims of indebtedness. 



6oo Capitalist Production. 

jobbers, Vv'ho speculate in these securities, play a prominent 
role on tlie monej-market. If all the purchases and sales 
of these papers were only an expression of actual investments 
of capital, it would be correct to say, that they can have no 
influence on the demand for loan capital, since, when A sells 
his paper, he draws exactly as much money as B puts into 
the paper. But even if the paper itself exists, though not 
the capital (at least not as money-capital) originally repre- 
sented by it, it always creates to that extent a demand for 
such money-capital. But at any rate it is then money-capital, 
which was previously at the disposal of B and is not at the 
command of A. 

B. A. 1857. No. 4886. " Is it in your opinion a correct 
statement of the causes determining the rate of discount, when 
I say that it is regulated by the quantity of capital existing 
on the market, which is available for the discounting of com- 
mercial bills, as distinguished from other kinds of securi- 
ties? " [Chapman]: " ]^o, I hold that the rate of interest 
is affected by all convertible securities of current character; 
it would be wrong to limit the question simply to the dis- 
counting of bills ; for when there is a strong demand for 
money on consols [deposited] or even treasuiy notes, as was 
strongly the case of late, and at a much higher than the commer- 
cial rate of interest, it would be absurd to say that our com- 
mercial world is not influenced by it ; it is very essentially 
touched by it." — 4890. "When good and current securities, 
such as bankers accept, are on the market, and the owners take 
up money on them, it has surely an effect on the commercial 
world ; for instance, I cannot expect that a man should give 
me his money at 5% on a commercial bill, when he can lend 
this money out at the same time at 6% on consols, etc.; it 
affects us in the same way; nobody can expect of me that I 
should discount his bills at 5-J%, when I can lend my money 
out at 6%." — 4892. "Of people, who buy securities as 
fixed investments of capital for 2,000, or 5,000, or 10,000 
pounds sterling, we do not sj)eak as though they had any es- 
sential influence upon the money-market. When you ask 
me for the rate of interest on [a deposit of] consols, I speak 



Money-Capital and Actual Capital. 60 1 

of people, who transact business to the amount of hundreds of 
thousands, of so-called jobbers, who underwrite large amounts 
of public loans, or buy them on the market, and who must hold 
these papers until thej can get rid of them at a profit; these 
people must take up money for this purpose." 

With the development of the credit system gTeat concen- 
trated money-markets are created, such as London, which are 
at the same time the main seats of trade in such securities. 
The bankers place the money-capital of the public in masses 
at the disposal of this unsavory crowd of dealers, and thus 
this breed of gamblers multiplies. " Money is generally 
cheaper at the stock exchange than anywhere else," says the 
incumbent of the Governor's chair of the Bank of England in 
18-18 before the secret Committee of Lords, C. D. 1848, 
printed, 1857, 'No. 219.) 

In the discussion of the interest-bearing capital we have 
already shown, that the average interest for a long period 
of years, other circumstances remaining the same, is de- 
termined by the average rate of profit; this does not mean 
profits of enterprise, which are themselves nothing but profit 
minus interest. 

It has also been mentioned, and will be further analysed in 
another place, that the variations of commercial interest, that 
is, of interest calculated by the money lenders for discounts 
and loans within the commercial world, meet in the course 
of the industrial cycle a phase, in which the rate of interest 
exceeds its minimum and reaches its average level, which it 
exceeds later, and that this movement is a result of a rise in 
profits. 

However, two things must be noted here. 

First: When the rate of interest stays up for a long time 
(we are speaking here of the rate of interest of a certain 
country, for instance England, where the average rate of inter- 
est is a fact for a certain long time, and presents itself also in 
the interest paid on loans for a long period, called private inter- 
est), it is an evident proof of the fact, that the rate of profit is 
high during this period, but it does not prove necessarily, that 
the rate of profits of enterprise is high. This last distinction 



6o2 Capitalist Production. 

is more or less removed for capitalists, who operate mainly 
with their own capital; they realise the high rate of profit, 
since they pay their own interest. The possibility of a high 
rate of interest of long duration is present when the rate of 
profit is high ; this does not refer, however, to the phase of the 
actual stringency. But it is possible, that this high rate of 
profit may leave but a low rate of profit of enterprise, after 
the high rate of interest has been deducted. The rate of profit 
of enterprise may shrink, while the high rate of profit con- 
tinues. This is possible, because the enterprises must be con- 
tinued after they have once been started. During this phase 
operations are carried on to a large extent with a pure credit 
capital (capital of other people) ; and the high rate of profit 
may be speculative, prospective, in some places. A high rate 
of interest may be paid with a high rate of profit, while profit 
of enterprise is declining. It may be paid (and this is done 
in part during times of speculation), not out of the profit, 
but out of the borrowed capital of another, and this may con- 
tinue for a long time. 

Secondly: The expression, that the demand for money- 
capital, and with it the rate of interest, grows, while the rate 
of profit is high, is not the same as that which is to the effect 
that the demand for industrial capital grows and with it tlie 
rate of interest is high. 

In times of crisis the demand for loan capital, and with it 
the rate of interest, reach their maximum ; the rate of profit, 
and with it the demand for industrial capital, are almost gone. 
In such times every one borrows only for the purpose of pay- 
ing, in order to settle previously contracted obligations. On 
the other hand, in times of renewed activity after a crisis, 
loan capital is demanded for the purpose of buying, and for 
the purpose of transforming money-capital into productive 
and commodity-capital. And then it is in demand either by 
the industrial capitalist or the merchant. The industrial cap- 
italist invests it in means of production and in labor-power. 

The rising demand for labor-power can never be by itself 
a cause for a rising rate of interest, so far as this is determined 
by the rate of profit. A higher wage is never a cause of 



Money-Capital and Actual Capital. 603 

higher profits, although it may be one of the consequences of 
higher profits, in some particular phases of the industrial 
cycle. 

The demand for labor-power may increase, because the ex- 
ploitation of labor takes place under especially favorable cir- 
cumstances, but the rising demand for labor-power, and thus 
for variable capital, does not in itself increase the profit; it 
rather lowers it to that extent. But the demand for variable 
capital ma^ nevertheless increase with the demand for labor- 
power, and to that extent the demand for money-capital, and 
this may raise the rate of interest. The market price of 
labor-power then rises above its average, more than the average 
number of laborers are employed, and the rate of interest 
rises at the same time, because the demand for money-capital 
rises under such circumstances. The rising demand for la- 
bor-power makes this commodity dearer like any other, in- 
creases its price, but not the profit, which rests mainly upon 
the relative cheapness of just this commodity. But it raises 
under the given assumptions also the rate of interest, because 
it increases the demand for money-capital. If the money- 
capitalist, instead of loaning the money, should transform 
himself into an industrial capitalist, then the fact that he has 
to pay more for labor-power would not increase his profit, but 
would rather decrease it in proportion. The constellation 
of conditions may be such, that his profit may rise neverthe- 
less, but it will be in spite of the fact that he pays more for 
labor-power, and not because of it. This last circumstance, 
so far as it increases the demand for money-capital, is on the 
other hand sufficient to raise the rate of interest. If wages 
should rise for some reasons while the constellation is unfavor- 
able, then the rise in wages would lower the rate of profit, but 
raise the rate of interest in proportion as it would increase 
the demand for money-capital. 

Leaving the question of labor aside, the thing called " de- 
mand for capital " by Overstone consists only in a demand for 
commodities. The demand for commodities raises their 
price, either because it may rise above the average, or be- 
cause the supply of comnaodities may fall below the a,verag-e. 



6o4 Capitalist Production. 

If the industrial capitalist or the merchant must now pay 150 
pounds sterling for the same mass of commodities for which 
he used to pay 100 pounds sterling, he would have to borrow 
150 pounds sterling whereas he had to borrow but 100 pounds 
sterling formerly, and if the rate of interest were 5%, he 
would now have to pay 7^ pounds sterling of interest as 
against 5 pounds sterling of former times. The mass of the 
interest to be paid by him would rise because he now has to 
borrow more capital. 

The whole attempt of Mr. Overstone consists in pretending 
that the interests of loan capital and of industrial capital are 
identical whereas his Bank Acts are precisely calculated to 
exploit the difference of these interests for the benefit of 
money-capital. 

It is possible, that the demand for commodities, in case their 
supply has fallen below average, does not absorb any more 
money-capital than formerly.- The same sum, or perhaps a 
smaller one, has to be paid for their total value, but a smaller 
quantity of use-values is received for the same sum. In this 
case the demand for loanable money-capital will remain the 
same, and the rate of interest will not rise, although the de- 
mand for commodities would have risen as compared to their 
supply, and consequently the price of commodities would 
have become higher. The rate of interest cannot be touched, 
unless the total demand for loan capital increases, and this is 
not the case under the above assumption. . 

The supply of an article may also fall below average, as it 
does in case of crop failures of com, cotton, etc., and the de- 
mand for loan capital may increase, because the speculation 
in these commodities calculates on a rise in their prices and 
the first means of making them rise is to curtail for a while 
a portion of their supply on the market. But in order to pay 
for the bought commodities without selling them, money is 
secured by means of the commercial bill system. In this case 
the demand for loan capital increases, and the rate of interest 
may rise in consequence of this attempt to prevent by artificial 
means the supply of this commodity to the market. The 



Money-Capital and Actual Capital. 605 

higher rate of interest expresses in that case an artificial re- 
duction of the supply of commodity-capital. 

On the other hand the demand for an article may rise^ be- 
cause its supply has increased and the article stands below its 
average price. 

In this case the demand for loan-capital may remain the 
same or may even fall, because more commodities can be had 
for the same sum of money. A speculative formation of a sup- 
ply might also occur, either for the purpose of taking advantage 
of a favorable moment for the ends of production, or in ex- 
pectation of a future rise in prices. In this case the demand 
for loan capital might grow, and the rise in the rate of in- 
terest would then be an expression of an investment of capi- 
tal in the formation of an extra supply of elements of produc- 
tive capital. We consider here merely that demand for loan 
capital, which is influenced by the demand and supply of 
commodity-capital. We have explained on a previous occa- 
sion, that the changing condition of the process of reproduc- 
tion in the phases of the industrial cycle has its effect upon the 
supply of loan capital. The trivial statement to the effect 
that the market rate of interest is determined by the supply 
and demand of (loan) capital, is shrewdly mixed up by Over- 
stone with his own assumption, according to which loan capital 
is identical with capital in general, and in this way he tries 
to transform the usurer into the only capitalist and his capital 
into the only capital. 

In times of stringency the demand after loan capital is a 
demand for means of payment and nothing else; it is by no 
means a demand for money as a means of payment. The 
rate of interest may rise very high at the same time, regard- 
less of whether real capital, that is, productive and commod- 
ity-capital, exists in abundance or is scarce. The demand 
for means of .payment is a mere demand for convertibility into 
money, to the extent that the merchants and producers can 
offer good security; it is a demand for money-capital in so 
far as it is not this other, in other words, so far as an ad- 
vance of means of payment gives them not merely the form 



6o6 Capitalist Production. 

of money, but also the equivalent whicli they lack for making 
payment in whatever form. This is the point, where both 
sides of the current theory are right and wrong in their opin- 
ion about crisis. Those who say that there is merely a lack 
of means of payment, have either the owners of bona fide se- 
curities alone in view, or they are fools who believe that it is 
the duty and power of banks to transform all bankrupt 
swindlers into solvent and solid capitalists by means of pieces 
of paper. Those who say that there is merely a lack of cap- 
ital, are either harping on words, since in such times there is 
a mass of inconvertible capital in consequence of over-im- 
ports and overproduction, or they are referring only to such 
knights of credit as are now placed in conditions, where they 
cannot any longer get other people's capital for their opera- 
tions, and who now demand that the bank should not only help 
them to pay for the lost capital, but also enable them to con- 
tinue their swindling. 

It is a basic principle of capitalist production, that the 
money, as an independent form of value, must stand opposed 
to commodities, or that exchange-value must assume an in- 
dependent form in money, and this is possible only by making 
of one definite commodity the material, whose value measures 
all other commodities, so that it thus becomes the general com- 
modity, the commodity par excellence as distinguished from 
all other commodities. This must become evident in two 
respects, particularly among capitalistically developed nations, 
who substitute other things for large masses of money, partly 
through credit operations, partly through credit money. In 
times of stringency, when credit shrinks or ceases entirely, 
money suddenly becomes the only means of payment and the 
only true existence of absolute value as opposed to all other 
commodities. Hence a universal depreciation of commodities, 
difficulty or even impossibility of transforming them into 
money, that is, into their own purely phantastic form. In 
the second place, credit money itself is but money in so far 
as it absolutely takes the place of actual money to the amount 
of its nominal value. With the export of gold its own con- 
vertibility becomes problematical, that is, its identity with 



Money-Capital and Actual Capital. 607 

actual money. Hence forcible measures, raising of the rate 
of interest, etc., for the purpose of safeguarding the conditions 
of this convertibility. This may be carried more or less to 
excess by mistaken legislation, resting upon false theories of 
money and enforced upon the nation by the interests of the 
money dealers, of Overstone and his like. The basis, however, 
is given with the basis of the mode of production itself. A 
depreciation of credit money (not to mention it^ imaginary 
depreciation) would unsettle all existing relations. The value 
of commodities is therefore sacrificed, for the purpose of safe- 
guarding the phantastic and independent existence of this 
value in money. As money-value it is secured only so long 
as money itself is secure. For the sake of a few millions of 
money many millions of commodities must therefore be 
sacrificed. This is inevitable under capitalist production and 
constitutes one of its beauties. In former modes of pro- 
duction this does not occur, because on the narrow basis, upon 
which they move, neither credit nor credit money can develop 
to any extent. So long as the social character of labor appears 
as the money-existence of commodities, and thus as a thing 
outside of actual production, money crises are inevitable, 
either independently of crises or intensifying them. On the 
other hand it is obvious that, so long as the credit of a bank 
is not shaken, it will alleviate the panic in such cases by in- 
creasing the credit money, and intensify it by contracting this 
money. All history of modern industry shows that metal 
would indeed be required only for the balancing of interna- 
tional commerce, whenever its equilibrium is disturbed mo- 
mentarily, if only national production were properly organ- 
ised. That the inland market does not need any metal even 
now is shown by the suspension of cash payments of the so- 
called national banks, that resort to this expedient whenever 
extreme cases require it as the sole relief. 

In the case of two individuals it would be ridiculous to 
say that both of them have a balance of payment against one 
another in their mutual transactions. If they are mutually 
creditors and debtors of one another, it is evident that to the 
.extent that their claims do not balance, one must be the 



6o8 Capitalist Production. 

creditor and the other the debtor for the remainder. But in 
the case of nations this is by no means so. And that it is not 
so is acknowledged by all economists through the statement, 
that the balance of payment may be for or against a nation, 
even if its balance of trade must ultimately be settled. The 
balance of payment differs from the balance of trade in so 
far as payment is a balance of trade which must be settled at 
a definite period. What crises accomplish is the crowding of 
the difference between the balance of payment and the balance 
of trade into a short time ; and the definite conditions^ which 
develop in the nation suffering from a crisis and facing the 
term when payment becomes due, carry with them such a 
contraction of the time of settlement. These conditions are, 
first the shipping away of precious metals ; then the throwing 
away of consigned commodities ; the exportation of com- 
modities for the purpose of getting rid of them or of securing 
loans on them in the home market; the rising of the rate of 
interest, the calling in of credits, the falling of securities, the 
selling out of foreigTi securities, the attraction of foreign cap- 
ital for investment in these depreciated securities, and finally 
bankruptcy, which settles a mass of obligations. While this 
is going on, metal is often sent for some time into the country, 
where a crisis has broken out, because bills of exchange on it 
are unsafe and payment is best made in metal. This is 
further explained by the fact that in the case of a country 
like Asia all capitalist nations are generally direct or indirect 
debtors of it at the same time. As soon as these different 
circumstances exert their full effect upon the other involved 
nation, it likewise begins its export of gold and silver on ac- 
count of the expiration of the date of payment, and the same 
phenomena are repeated. 

In commercial credit the interest, being the credit price as 
distinguished from the cash price, enters only in so far into 
the price of commodities as the bills of exchange have a 
longer running time than the ordinary. Otherwise it does 
not. And this is explained by the fact that every one takes 
credit with one hand and gives it with the other. [This does 
net agree wilh my experience. F. E.] But so far as discount 



Money-Capital and Actual Capital. 609 

in this form enters into consideration here, it is not reguhated 
by this commercial credit, but by the money-market. 

If the demand and supply of money-capital, which deter- 
mine the rate of interest, were identical with the demand and 
supply of actual capital, as Overstone maintains, then the 
interest would be simultaneously high or low according to dif- 
ferent commodities, or different phases of the same commodity 
(raw material, partly finished product, finished product). In 

1844 the rate of interest of the Bank of England fluctuated 
between 4:% from January to September to 2-| and 3% from 
ISTovember to the end of the year. In 1845 it was 2|-, 2f, 
3% from January to October, and between 3 and 5% during 
the remaining months. The average price of fair Orleans 
cotton was 6| d. in 1844 and 4| d. in 1845. On March 3, 

1844, the cotton supply in Liverpool was 627,042 bales, and 
on March 3, 1845, it was 773,800 bales. To judge by the low 
price of cotton^ the rate of interest should have been low in 

1845, and it was indeed for the greater part of this time. 
But to judge by the yarn the rate of interest should have been 
high, for the prices were relatively and the profit absolutely 
high. From cotton at 4 d. per pound a yarn could be spun in 

1845 with a spinning cost of 4 d. (No. 40 good second mule 
twist), or a total cost of 8 d. to the spinner, which he could 
sell in September and October 1845 at 10^ or 11^ d. per 
pound. (See the testimony of Wylie farther on.) 

This whole question may be decided by the following con- 
siderations : 

A supply and demand of loan capital would be identical 
with a demand and supply of capital in general (although this 
last phrase is absurd; for the industrial or commercial capi- 
talist a commodity is a form of his capital, yet he never asks 
for capital as such, but only for this particular commodity as 
such, buys and sells it as a commodity, corn or cotton, regard- 
less of the role which it has to play in the rotation of his 
capital), if there were no money lenders, and if in their 
stead the lending capitalists were in possession of machinery, 
raw materials, etc., which they would rent or loan just as 
houses are now, to the industrial capitalists, who are them- 

2M 



6 10 Capitalist Production. 

selves part owners of these things. Under such circumstances 
the supply of loan capital would be identical with the supply 
of elements of production for the industrial capitalist, and 
of commodities for the merchant. But it is evident, that 
then the division of profit between the lender and borrower 
would depend primarily upon the proportion, in which this 
capital is loaned and in which it is the property of the one 
who employs it. 

According to Mr. Weguelin (B. A. 1857) the rate of 
interest is determined by ".the mass of unemployed capi- 
tal" (252) ; it is "but an index of the mass of unemployed 
capital seeking investment" (271); later this unemployed 
capital becomes a "floating capital" (485) and by this he 
means " notes of the Bank of England and other means of 
circulation in the country, for instance the notes of provincial 
banks and the coins existing in the country. . . . I in- 
clude in the floating capital also the reserves of the banks " 
(502,503), and later he includes also gold bullion (503). 
Thus the same Mr. Weguelin says that the Bank of England 
has a great influence upon the rate of interest in times, when 
" we " (the Bank of England) actually have the greater por- 
tion of the unemployed capital in oUr hands (1198), while 
according to the above testimony of Mr. Overstone the Bank 
of England " is no place for capital, " Mr. Weguelin further 
says : " In my opinion the rate of discount is regulated by the 
quantity of the unemployed capital in the country. The 
quantity of unemployed capital is represented by the reserve. 
of the Bank of England, which is in fact a metal reserve. 
Hence when the metal hoard is reduced, it reduces the 
quantity of unemployed capital in the country and conse- 
quently raises the value of the remaining quantity. " (1258.) 
J. Stuart Mill says, 1102 : " The Bank is compelled, in order 
to keep its banking department solvent, to do its utmost to 
fill the reserve of this dei^artment, hence as soon as it finds 
that a drain begins, it must secure its reserve and either re- 
duce its discounts or sell securities. " — The reserve, so far 
as only the banking department is concerned, is a reserve 
for the deposits only. According to the Overstones the bank- 



Money-Capital and Actual Capital. 6ii 

ing department is supposed to act only as a banker, without 
regard to any " automatic " issue of notes. But in times of 
actual stringency this institution, independently of the reserve 
of the banking department, which consists only of notes, keeps 
a sharp eye on the metal reserve, and must do so, if it would 
not fail. For in proportion as the metal reserve dwindles, 
disappears also the reserve of bank notes, and no one should 
know this better than Mr. Overstone, who has so wisely ar- 
ranged this by his Bank Acts of 1844. 



CHAPTER XXXIII. 

THE CUREENCY "UNDER THE CREDIT SYSTEM. 

" The great regulator of the velocity of circulation is 
credit. This explains, why a sharp stringency in the money- 
market generally coincides with a full circulation." {The 
Currency Question Reviewed, p. 65.) This is to be taken in 
a double sense. On one hand all methods, which save cur- 
rency, are based upon credit. On the other hand, take, for 
instance, a 500 pound note. A gives it today to B in payment - 
for a bill of exchange ; B deposits it on the same day in 
his bank; his banker discounts with it on the same day a 
bill of exchange for C ; C pays it to his bank, the bank gives 
it to the bill broker as a loan, etc. The velocity with which 
this note circulates here in purchases and sales is promoted 
by the velocity with which it always returns to some one in 
the form of a deposit and passes over to some one else in the 
form of a loan. The mere economising of the currency ap- 
pears most highly developed in the Clearing House, the mere 
exchange of due bills of exchange, and the function of 
money preferentially as a means of payment for balancing 
mere remainders. But the existence of these bills rests itself 
upon credit, which the industrials and merchants mutually 
give to each other : If this credit declines, so does the number 



6i2 Capitalist Production. 

of bills, particularly of long time ones, and consequently also 
the effectiveness of this method of balancing accounts. And 
this economy, which consists in the elimination of money from 
the transactions, and which rests entirely upon the fimction of 
money as a means of payment, which in its turn rests again 
upon credit, can be only of two kinds (aside from the more or 
less developed technique in the concentration of these pay- 
ments) : Mutual claims of indebtedness, represented by bills of 
exchange or checks, are balanced either by the same banker, 
who merely transcribes the claim from the account of one to 
that of another, or by different bankers squaring accounts 
against each other. -^^^ 

The concentration of 8 'to 10 million bills of exchange in 
the hands of one bill broker, such as the firm of Overend, 
Gurney & Co., was one of the principal means of expanding 
the scale of these balances locally. By this economy the ef- 
fectiveness of the currency is increased, so far as a smaller 
quantity of it is required for the mere balancing of ac- 
counts. On the other hand the velocity of the money circulat- 
ing as currency (by which it is likewise economised) depends 
entirely upon the flow of purchases and sales, or also on the 
concatenation of payments, so far as they are made suc- 
cessively in money. But credit promotes and increases the 
velocity of currency. A single piece of money, for instance, 
may perform only five rotations, and remains for a certain 
time in each hand, as a mere medium of circulation, without 
the intervention of credit, when A, its original o^vner, buys 
from B, then B from C, then C from D, then D from E, then 
E from E, that is, when its transition from one hand to 
another is due only to actual sales and purchases. But when 
B deposits the money received from A in his bank and his 
banker issues it in the discounting of bills to C, and he buys 

"^Average number of days, during which a bank note remained in circulation: 



Year 


5 p. Note 


10 


p. Note 


20- 


-100 p. 


200- 


-500 p. 


1000 p. 


1798 


? 




236 




209 




31 


22 


1818 


148 




137 




121 




18 


13 


1846 


79 




71 




34 




12 


8 


1856 


70 




58 




27 




9 


7 



Tabulation made by Marshall, Cashier of the Bank of England, in Report on 
Bank Acts, 1857, II, Appendix, p. 301-302. 



Currency Under the Credit System. 613 

from D, and D deposits it in his bank, and his banker lends 
it to E, who buys from F, then even its velocity as a mere 
medium of circulation (means of purchase) is promoted by 
several credit operations : the depositing of this money by B 
in his bank, the discounting of his banker for C, the depositing 
of D in his bank, and the discounting of this banker for E ; four 
credit operations. Without these credit operations the same 
piece of money would not have performed five purchases suc- 
cessively in a given time. The fact that it changed hands 
without the promotion of actual sales and purchases, by de- 
posits and discounts, has here accelerated its change of hands 
in the series of actual transactions. 

We have seen previously, that one and the same bank note 
may be a deposit in different banks. It may also form dif- 
ferent deposits in the same bank. The banker discounts with 
the note, which A has deposited, the bill of B, and B pays it 
over to C, who deposits the same note in the same bank that 
issued it. 



We have already demonstrated in the discussion of the 
simple circulation of commodities (Volume I, Chapter III, 
2), that the mass of the actually circulating money, assuming 
the velocity of currency and the economy of payments to be 
given, is determined by the prices of commodities and the mass 
of transactions. The same law rules the circulation of notes. 

In the following table, the annual averages of the notes of 
the Bank of England are set down, so far as they were in 
the hands of the public, namely the amounts of 5 and 10 
pound notes, those of 20 to 100 pound notes, and those of 
the larger notes between 200 and 1000 pounds sterling; 
together with the percentages of the total circulation supplied 
by each one of these classes. The amounts stand for 
thousands, the last three figures being left out. 





5-10 p. 




S 0-1 00 




200-1000 






YEAR 


NOTES 


% 


p. NOTES 


% 


P. NOTES 


% 


TOTALS 


1844 


9,263 


45.7 


5,735 


28.3 


5,253 


26.0 


20,241 


1845 


9,698 


46.9 


6,082 


29.3 


4,942 


28.6 


20,723 


1846 


9,918 


48.9 


5,771 


28.5 


4,590 


23.6 


30,286 



6i4 ' Capitalist Production. 

5-10 p. 20-100 200-1000 

YEAR NOTES % P. NOTES % P. NOTES % TOTALS 

1847 9,591 50.1 5,498 28.7 4,066 21.2 19,155 

1848 8,732 48.3 5,046 27.9 4,307 23.8 18,085 

1849 8,692 47.2 5,234 28.5 4,777 24.3 18,403 

1850 9,164 47.2 5,587 28.8 4,646 24.0 19,398 

1851 9,362 48.8 5,554 28.5 4,557 23.4 19,473 

1852 9,839 45.0 6,161 28.2 5,856 26.8 21,856 

1853 10,699 47.3 6,393 28.2 5,541 24.5 22,653 

1854 10,565 51.0 5,910 28. 5 4,234 20.5 20,709 

1855 10,628 53.6 5,706 28.9 3,459 17.5 19,793 

1856 10,680 54.4 5,645 28.7 3,324 16.9 19,648 

1857 10,659 54.7 5,567 28.6 3,241 16.7 19,467 

(B. A. 1858, p. I, TI.) The total mass of circulating bank 
notes has, therefore, positively decreased from 1844 to 1857, 
although the commercial business had more than doubled, as 
indicated by exports and imports. The smaller bank notes 
of 5 and 10 pounds sterling increased, as the table shows, 
from 9,263,000 in 1844 to 10,659,000 pounds sterling in 
1857. And this took place simultaneously with the very 
heavy increase in the gold circulation of that time. On the 
other hand, there was a decrease of the notes of higher de- 
nominations (200 to 1000 pounds sterling) from 5,856,000 
in 1852 to 3,241,000 pounds sterling in. 1857, a decrease of 
more than 2| millions. This is explained as follows: "On 
June 8, 1854, the private bankers of London permitted the 
stock banks to take part in the erection of the Clearing House, 
and soon after that the final clearing was established in the 
Bank of England. The daily balances were settled by 
transcribing them on the accounts, which the different banks 
keep in the Bank of England. By the introduction of this 
system the notes of high denomination, which the banka 
formerly used for balancing their mutual accounts, have 
become superfluous." (B. A. 1858, p. V.) 

To what a small minimum the use of money in wholesale 
trade has been reduced, may be seen in the table published 
in Volume I, Chapter III, page 157, footnote 1, which was 
furnished to the Committee on Bank Acts by Morrison Dillon 
& Co., one of the largest of those London firms, from whom a 
small dealer can buy his entire stock of commodities of all 
kinds. 

According to the testimony of W. Newmareh before the 



Currency Under the Credit System. 615 

B. A. 1857, 'No. 1741, still other circumstances contributed 
to the economy in currency : The penny postage, the railroads, 
the telegraphs, in short, the improved means of communica- 
tion; so that England can now carry on a five to six times 
larger business with about the same circulation of bank notes. 
It is also declared to be due to a marked degree to the 
withdrawal of the notes of a higher denomination than 10 
pounds sterling from the circulation. This appears to him as 
a natural explanation for the fact that in Scotland and Ireland, 
where also one pound notes circulate, the circulation of notes 
has risen by about 31% (1747). The total circulation of 
bank notes in the United Kingdom, including the one pound 
notes, is said to be 39 millions (1749). The gold circulation 
70 millions (1750). In Scotland the circulation of notes 
was 3,120,000 pounds sterling in 1834; 3,020,000 pounds 
sterling in 1844; and 4,050,000 pounds sterling in 1854 
(1752). 

From these facts alone it is evident, that it lies by no 
means with the banks issuing notes to increase the number of 
circulating notes, so long as these notes are at all times ex- 
changeable for money. [Inconvertible bank notes are not 
taken into consideration at all here; inconvertible bank notes 
can become universal means of circulation only under condi- 
tions, in which they are actually backed up by national credit, 
as is the case of Russia at present. In that case they fall 
under the laws of the inconvertible national paper money, 
which have been developed already in Volume I, Chapter III, 
2, c, Coin and Symbols of Value. — F. E.] 

The quantity of circulating notes is regulated by the re- 
quirements of commerce, and every superfluous note wanders 
back immediately to the issuing party. Since in England 
only the notes of the Bank of England circulate universally 
as the legal means of payment, we may neglect at this point 
the slight and merely local circulation of the provincial banks. 

In B. A. 1858 Mr. ISTeave, Governor of the Bank of 
England testifies : ISTo. 947. Question : " Whatever measures 
you may take, the amount of notes, you say, remains the 
same, that is, about 20 million pounds sterling ? " — Answer : 



6i6 Capitalist Production. 

" In ordinary times the wants of the public seem to require 
about 20 million pounds sterling." — At certain periodically 
recurring times each year this is increased by one or one and 
half millions. If the public needs more, they can always, 
as I said, get them from the Eank of England." — 948. 
" You said that during the panic the public did not want to 
allow you to reduce the amount of the notes; will you state 
your reasons ? " — " In times of panic the public, it seems 
to me, has full power to secure notes; and of course, so long 
as the Bank has any obligation, the public can take notes from 
the Bank on this obligation." — 949. " It seems, then, that 
at all times about 20 million notes of the Bank of England 
are required ? " — " 20 million notes in the hands of the 
public; it changes. It is 18|, 19, 20 millions, etc.; but on 
an average you may say 19-20 millions." 

Testimony of Thomas Tooke before the Committee of Lords 
on Commercial Distress (C. D. 1848-57) l^o. 3094: "The 
Bank has no power to expand the amount of its notes in 
the hands of the public at its own arbitrary will; it has the 
power to reduce the amount of notes in the hands of the public, 
but only by means of a very forcible operation." 

J. C. Wright, for 30 years a banker in ]S[ottingham, having 
explained at length the impossibility, that a provincial bank 
should be able to set more notes into circulation than the 
public needs, says of the notes of the Bank of England: 
(C. D. 1848-57) ^0. 2844: "I know of no limit" (for 
the issue of notes) " for the Bank of England, but every 
surplus of the circulation will pass over into the deposits and 
thus assume another form." 

The same holds good for Scotland, where almost nothing 
but paper circulates, because there as well as in Ireland one 
pound notes are also in vogue and " the Scotch hate gold." 
Kennedy, Director of a Scotch bank, declares that banks can- 
not even contract their circulation of notes, and is " of opin- 
ion that, so long as inland transactions require notes or gold in 
order to be carried on, the bankers must furnish as much cur- 
rency as these transactions need — either on demand of 
their depositors or otherwise. . . . The Scotch banks can 



Currency Under the Credit System. 617 

contract their business, but they cannot exert any control over 
their issue of notes." (Ibidem, No. 3446-48.) In like man- 
ner Anderson, Director of the Union Bank of Scotland, 
answers question JSTo. 3678, asked ibidem: " Does the system of 
mutually exchanging notes " [among the Scotch banks] " pre- 
vent an overissue of notes on the part of the individual bank ? " 
— • " Yes ; but we have a more effective means than the ex- 
change of notes " [which has really nothing to do with this, 
but does indeed guarantee the ability of the notes of each bank 
to circulate throughout all of Scotland] , " and that is the 
general custom in Scotland of keeping a bank account ; every 
one who has any money at all has also an account in some 
bank and turns in daily all the money which he does not 
need immediately for himself, so that at the end of every 
business day all the money is in the banks, except what each 
carries in his pockets." 

The same applies to Ireland, as shown by the testimony of 
the Governor of the Bank of Ireland, MacDonnell, and the 
Director of the Provincial Bank of England, Murray, before 
the same Committee. 

The circulation of notes is just as independent of the state 
of the gold reserve in the cellars of the bank, which guarantees 
the convertibility of these notes, as it is of the will of the 
Bank of England. " On September 18, 1846, the circulation 
of the notes of the Bank of England was 20,900,000 pounds 
sterling and its metal reserve was 16,273,000 pounds sterling; 
on April 5, 1847, 'the circulation was 20,815,000 pounds 
sterling and the metal reserve was 10,246,000 pounds sterling. 
Hence no contraction of the currency took place in spite of 
the export of 6 million pounds sterling of precious metal." 
(J. G'. Kinnear, The Crisis and the Currency, London, 1847, 
p. 5.) Of course, this applies only to the conditions which 
prevail in England at present, and even there only so far 
as legislation does not decide differently concerning the re- 
lation between the issue of notes and the metal reserve. 

Hence only the requirements of business itself exert an 
influence on the quantity of circulating money — notes and 
gold. In the first instance the periodical fluctuations, which 



6i8 Capitalist Production. 

repeat themselves every year, should be noted here, regardless 
of the general condition of business, so that for 20 years " in 
a certain month the circulation is high, in another low, and 
in a third definite month a middle point occurs." (New- 
march, B. A. 185 Y, No. 1650.) 

For instance, in August of every year a few millions, gen- 
erally in gold, pass from the Bank of England into inland 
circulation, in order to pay the expenses of the harvest ; since 
the principal payments to be made here are wages, bank notes 
are less serviceable in England for this purpose. By the 
close of the year this money has returned to the Bank. In 
Scotland there are almost nothing but one pound notes instead 
of Sovereigns ; in this case, then, it is the circulation of notes 
which is expanded during the aforesaid term, and at another, 
that is, twice a year, in May and November, by about 3 or 
4 millions; within fourteen days the reflux begins, and it 
is almost completed in one month. (Anderson, 1. c, No., 
3595-3600.) 

The circulation of the notes of the Bank of England also 
experiences every quarter a momentary fluctuation on account 
of the quarterly payment of the " dividends, " that is, the 
interest on the national debt by which bank notes are first 
withdrawn from circulation and then once more distributed 
between the public. But they return very soon. Weguelin 
(B. A. 1857, No. 38) states that this fluctuation of the circula- 
tion of notes amounts to two and half millions. Mr. Chap- 
man of the notorious firm of Overend, Gurney & Co., however, 
calculates the disturbance created by this fluctuation in the 
money market at a far higher figure. " If you take 6 or 7 
millions for taxes out of the circulation, for the purpose of 
paying dividends with them, there must be somebody, who 
places this amount within reach in the meantime." (B. A. 
1857, No. 5196.) 

Ear more considerable and lasting are the fluctuations in 
the amount of the currency corresponding to the various phases 
of the industrial cycle. Let us listen to another member of 
that firm, the worthy Quaker Samuel Gurney (C. D, 1848-57, 
No. 2645): "At the end of October (1847) there were 



Currency Under the Credit System. 619 

20,800,000 pounds sterling in notes in the hands of the public. 
At that time a great difficulty prevailed in the matter of 
securing bank notes in the money market. This arose from 
the general apprehension that it would not be possible to 
secure them on account of the limitation of the Bank Acts of 
1844. At present [March, 1848] the amount of bank 
notes in the hands of the public is . . . 17,700,000 
pounds sterling, but as there is no commercial alarm now, this 
is much more than is needed. There is no banker or no 
money dealer in London, who has not more bank notes than 
he can use." — 2650. "The amount of bank notes . . . 
out side of the keeping of the Bank of England forms a 
totally inadequate exponent of the actual state of the circula- 
tion, unless one considers at the same time . . . the con- 
dition of the commercial world and of credit." — 2651. 
" The feeling that we have a surplus at the present amount 
of currency in the hands of the public arises to a large degree 
from our present condition of great stagnation. With high 
prices and a brisk business 17,700,000 pounds sterling would 
give us a feeling of shortness." 

[So long as the condition of business is such, that the 
returns on the loans given come in regularly and credit re- 
mains unshaken, the expansion and contraction of the cur- 
rency depends simply upon the requirements of the industrials 
and merchants. Since gold does not enter into consideration 
in the wholesale trade, at least in England, and the circulation 
of gold aside from the fluctuations with the seasons, may be 
regarded as a rather constant magnitude for a long time, the 
circulation of the notes of the Bank of England forms a suf- 
ficiently accurate measure of these changes. In a dull period 
after a crisis the circulation is smallest, with the reanimation 
of the demand comes also a greater demand for currency, 
which increases with the rising prosperity; the quantity of 
currency reaches its culminating point in the period of over- 
tension and overspeculation — suddenly the crisis breaks 
out and over night the bank notes, yesterday still so plentiful, 
have disappeared from the market and with them the dis- 
counters of bills, the lenders of money on securities, the buyers 



620 Capitalist Production. 

of commodities. The Bank of England is called on for help 

— but even its powers are soon exhausted, the Bank Act of 
1844 compels it to contract its circulation of notes at the 
very moment when all the world cries out for notes, when 
the owners of commodities cannot sell and yet are supposed 
to pay and are ready to make any sacrifice, if they can only 
secure bank notes. " During the alarm," says the above- 
mentioned banker Wright, 1. c. I^o. 2930, " the country needs 
twice as much currency as in ordinary times, because the 
medium of circulation is stored up by bankers and others." 

As soon as the crisis breaks out, it is henceforth only a 
question of means of payment. But since every one is de- 
pendent upon the other for the coming in of these means of 
payment, and no one knows whether the other will be able 
to meet his payments when due, a stampede takes place for 
the means of payment available on the market, that is, the 
bank notes. Every one accumulates as many of them as he 
can secure, and thus the notes disappear from tlie circulation 
on the very day when they are needed most. Samuel Gurney 
(C. D. 1848-57, 'No. 1116) states that the amount of bank 
notes brought under lock and key in a moment of such terror 
in October 1847 to have been 4 to 5 million pounds sterling. 

— E. E.] 

In this connection, a special interest attaches to the cross- 
examination of the associate of Gurney, the aforementioned 
Chapman, before the B. A. of 1857. I reproduce its principal 
contents summarily, although it touches also upon certain other 
points, which we shall have to analyse later. 

Mr. Chapman has the following to say: 

4963. '^ I do not hesitate to say, that I do not consider 
it right, that the money market should be in the power of 
any one individual capitalist (such as exist in London), who 
can create an enormous scarcity of money and a stringency, 
when the circulation just happens to be low. . . . That 
is possible . . . there is more than one capitalist, who 
"can take notes to the amount of one or two million pounds 
sterling out of the currency, when it suits his purpose." — 
4995. A gTeat speculator can sell one or two million pounds 



Currency Under the Credit System. ■ 621 

worth of consols and thus take the money out of the market. 
Something similar to this has happened quite recently, '' it 
creates a very violent crisis." — 

4967. The notes are then indeed unproductive. " But that 
is nothing, when it serves a great purpose; its great purpose 
is to throw down the prices of funds, to create a money 
stringency, and to do that is quite within his power." — An 
illustration: One morning there was a great demand for 
money in the Money Exchange ; nobody knew its cause ; 
somebody asked Chapman to lend him 50,000 pounds sterling 
at 7%. Chapman was astonished, his rate of interest was 
much lower ; he acceiDted. Soon after that the man returned, 
took up another 50,000 pounds sterling at T-|%, then, 
100,000 at 8%, and wanted still more at 8|%. Then even 
Chapman became frightened. Later it was found out that 
suddenly a considerable sum of money had been withdrawn 
from the market. But, says Chapman, " nevertheless I had 
loaned out a considerable amount of money at 8% ; I was 
afraid to go farther ; I did not know what was coming." 

It must not be forgotten, that, although 19 to 20 millions 
in notes are continually supposed to be in the hands of the 
public, nevertheless that portion of notes, which actually 
circulates, and on the other hand that portion, which is held un- 
employed by the banks as a reserve, continually differ con- 
siderably from one another. If this reserve is large, and there- 
fore the actual circulation small, it means from the point of 
view of the money-market, that the circulation is full, money 
is plentiful ; if the reserve is small, and the actual circulation 
full, then the language of the money-market says that the cir- 
culation is low, money is scarce, that is to say, the portion rep- 
resenting unemployed loan caj)ital is small. A real expansion 
or contraction of the circulation in such a way, that it remains 
independent of the phases of the industrial cycle and leaves 
unchanged the amount needed by the public, occurs only for 
technical reasons, for instance, on the dates when taxes are 
due or the interest on a national debt. When taxes are 
paid, notes and gold beyond the ordinary amount flow into the 
Bank of England and practically contract the circulation 



622 Capitalist Production. 

without regard to its needs. The reverse takes place when 
the interest on the national debt is paid. In the first case, loans 
are demanded from the bank in order^to secure currency. In 
the last case, the rate of interest falls in the private banks 
on account of the momentary growth of their reserves. This 
has nothing to do with the absolute mass of currency, but 
only with the banking firm that sets this currency into circula- 
tion, and for whom this process represents itself as a loaning 
of loan capital, the profit of which it pockets. 

In the one case there is a temporary displacement of the 
circulating medium, which the Bank of England balances by 
short loans at low interest shortly before the quarterly taxes 
or the quarterly dividends on the nationel debt become due; 
The issue of these supernumerary notes first fills up the gap 
caused by the payment of the taxes, while their return to the 
bank soon after brings back the excess of notes thrown into 
circulation by the payment of dividends to the public. 

In the other case a low or full circulation means simply a 
different distribution of the same mass of currency into active 
circulation and deposits, which serve as an instrument of 
loans. 

On the other hand, if the number of notes is increased by a 
flow of gold into the Bank of England, then these notes assist 
in the discounting of bills outside of the bank and return to 
it by the payment of loans, so that the absolute mass of the 
circulating notes is but momentarily increased. 

If the circulation is full on-- account of the expansion of 
business (which may take place even though prices be rela- 
tively low), then the rate of interest may be relatively high 
on account of the demand for loan capital in consequence of 
rising profits and increased new investments. If it is low, 
on account of the contraction of business, or, perhaps, on ac- 
count of a great fluidity of credit, then the rate of interest may 
be low even though prices be high. (See Hubbard.) 

The absolute quantity of the gi^culation has a determining 
influence on the rate of interest only in times of stringency. 
The demand for a full circulation may either express merely 
a demand for means of hoarding (aside from the reduced ve- 



Currency Under the Credit System. 623 

locity of the circulation of money and that of the conversion 
of the same identical pieces of money into loan capital) ow- 
ing to lack of credit, as was the case in 1847,- when the sus- 
pension of the Bank Acts did not cause any expansion of the 
circulation, but sufficed to draw forth the hoarded notes and to 
throw them into circulation. Or it may be that more means 
of circulation are actually required under prevailing circum- 
stances, as was the case in 1857, when the circulation actually 
expanded for some time after the suspension of the Bank Acts. 

Otherwise the absolute mass of the circulation has no in- 
fluence upon the rate of interest, since the circulation, assum- 
ing the economy and velocity of the currency to be constant, is 
determined in the first place by the prices of commodities 
and the mass of the transactions (one of these elements gener- 
ally paralysing the action of the other), and in the second place 
by the state of credit, whereas it does not by any means exert 
any reverse influence on the state of credit ; and, finally, since 
the prices of commodities and interest have not necessarily 
any connection with each other. 

During the Bank Restriction Act (1797-1820) there was a 
superfluity of currency, the rate of interest was always much 
higher than it became since cash payments were resumed. 
Later it fell rapidly with the restriction of the issue of notes 
and rising quotations of bills. In 1822, 1823, and 1832 the 
general circulation was low, and so was the rate of interest. 
In 1824, 1825, and 1836 the circulation was full and the rate 
of interest rose. In the summer of 1830 the circulation was 
full, the rate of interest low. Since the discoveries of gold the 
gold circulation of all Europe has expanded, the rate of inter- 
est risen. The rate of interest, then, does not depend upon 
the quantity of the circulating money. 

The difference between the issue of currency and loans of 
capital is best shown in the real process of reproduction. We 
have seen, there (Volume II, Part III), in what manner the 
different component parts of the production are exchanged for 
one another. For instance, the variable capital consists 
substantially of the means of subsistence of the laborers, a 
portion of their own product. But this is paid over to them 



624 Capitalist Production. 

piecemeal in money. The capitalist has to advance this, and 
it depends very much on the organization of the credit system, 
whether he can pay out the new variable capital next week 
with the old money, which he paid out last week. The same 
holds good with regard to the acts of exchange between the 
different component parts of the total social capital, for 
instance, between the articles of consumption and the means 
of production of articles of consumption. The money for 
their circulation must, as we have seen, be advanced by one 
or both of the exchanging parties. It remains thereupon in 
the circulation, but returns after the consummation of the 
exchange always to him who advanced it, since it had been 
advanced by him in excess of his actually employed industrial 
capital (Vokmie II, Chapter XX.). Under a developed 
credit system, when the money is concentrated in the hands 
of the banks, it is they, at least nominally, who advance it. 
This advance refers only to the money existing in circulation. 
It is an advance of currency, not of the capitals, which the 
credit system circulates. 

Chapman 5062. " There may be times, when the bank 
notes in the hands of the public constitute a very large amount, 
and yet none may be had." Money exists also during a panic. 
But every one takes good care not to convert it into loanable 
capital; every one holds on to it for the purpose of meeting 
real payments. 

5099. " The banks in the rural districts send their un- 
employed surplus to you and other London firms ? " — 
" Yes. " — 5100. " On the other hand, the factory districts 
of Lancashire and Yorkshire have bills of exchange dis- 
counted by you for business purposes ? " — •" Yes. " — 5101. 
" So that in this way the superfluous money of a certain dis- 
trict is utilised for the requirements of another district ? " — 
" Quite right." 

Chapman says that the custom of the banks to invest their 
surplus money-capital for a short time in consols and treasury 
notes has decreased considerably of late, since the custom has 
been introduced to loan this money at call, reclaimable from 
day to day. For his own person he considers the purchase 



Currency Under the Credit System. 62 



D 



of such papers as verj impracticable for his business. He 
prefers to invest his surplus money-capital in good bills of 
exchange, a part of which becomes due every day, so that he 
can always be sure of knowing how much ready money he can 
count on from day to day. [5001 to 5005.] 

Even the growth of exports assumes more and more for 
every country, but particularly for the country granting the 
credit, the aspect of an increasing demand on the inland 
money-market, which is not felt, however, until the time of 
stringency. In times of increasing exports the manufacturers 
usually draw bills of exchange of long duration on the ex- 
port merchant who receives consignments of British goods. 
(5126.) — 5127. "It is not frequently the case, that an 
agreement exists, to renew these bills from time to time ? " — 
[Chapman:] "This is a matter which they keep secret; we 
should not admit any such bills. ... It may surely 
take place, but I cannot say anything about this." [The in- 
nocent Chapman.] 5123. "When a great increase takes 
place in the exports, such as that of last year which alone 
amounted to 20 million pounds sterling, does not that in itself 
lead to a large demand for capital in order to discount bills 
representing these exports?" — "Undoubtedly." — 5130. 
" Since England as a rule gives credit to foreign countries for 
all its exports, would not that imply the absorption of a cor- 
responding additional capital for the time it lasts ? " — 
" England gives an enormous credit ; but in return it takes 
credit for its raw materials. Drafts as are made out against 
us by America always for sixty days, and by other countries 
for ninety days. On the other hand we give credit; when 
sending goods to Germany, we give two or three months." 

Wilson asks Chapman (5131), whether bills on England 
are not drawn simultaneously with the loading of these raw 
materials and colonial goods destined for importation, and 
whether these bills do not arrive together with the bills of 
lading. Chapman thinks so, but does not know anything 
about these " commercial " transactions, and suggests that 
more expert men be asked. — In the export to America, says 
Chapman, the " commodities are symbolised in transit " ; this 



2N 



626 Capitalist Production. 

gibberish signifies that the English export merchant draws 
against his goods on one of the great American banking firms 
in London by means of a bill of exchange running for four 
months, and this firm receives collateral from America. 

5136. "Are not negotiations with far distant countries 
carried on by the merchant, who Avaits for his capital until 
the goods are sold ? " — ■ " There may be some firms of great 
private wealth, who are able to invest their own capital 
without taking advances on goods ; but these goods are mainly 
transformed into advances by the endorsement of well known 
firms. — 5137. " These firms are established in . . . 
London, Liverpool, and elsewhere." — 5138. " It makes no 
difference, then, whether the manufacturer has to give up 
his own money, or whether he gets some merchant in London 
or Liverpool to advance it ; it always remains an advance made 
in England ? " — " Quite right. The manufacturer has to 
do with this only in a few cases " [but in 1847 in almost 
every case]. " Eor instance, a dealer in manufactured goods, 
in Manchester, buys commodities and ships them through a 
responsible firm in London; as soon as the London firm has 
convinced itself, that everything has been packed as per agree- 
ment, he draws a bill running for six months on this London 
firm against these commodities bound for India, China, or 
some other country; then the banking world comes in and 
discounts this bill for him ; so that about the time, when he has 
to pay for these commodities. . . ." — 5139. " But even if 
this dealer now has the money, the banker had to advance it 
to him first ? " — " The hanher has the hill of exchange; the 
hanker has hought the hill; he utilises his banking capital in 
this form, that is in the discounting of commercial bills." 
[Hence even Chapman does not regard the discounting of 
bills as an advance of money, but as a purchase of com- 
modities. — E. E.] — 5140. "But still this constitutes 
always a part of the demands on the money-market in Lon- 
don ? " — " Undoubtedly ; this is the essential occupation of 
the money-market and of the Bank of England. The Bank 
of England is just as glad to get these bills as we, it knows 
that they are a good investment." — 5141. " In this way, ^n 



Currency Under the Credit System. . 627 

proportion as tlie export business grows, the demand in the 
money-market grows likewise ? " — " In proportion as the 
prosperity of the country grows, we " [the Chapmans] 
" partake in it." — 5142. " If, then, the various fields of 
investment of capital expand suddenly, the natural con- 
sequence is a rise of the rate of interest ? " — " There is no 
doubt of it." 

In 5143 Chapman cannot " quite understand, that with our 
large exports we had so much use for gold." 

In 5144 the venerable Wilson asks: " Cannot it be that we 
are giving more credit on our exports than we are taking on 
our imports ?" — " For myself, I should doubt this point. If 
any one gets accepts on his Manchester goods shipped to 
India, you cannot accept for less than ten months. We had, 
and this is quite certain, to pay America for its cotton some 
time before India paid us ; but what effect this has, to analyse 
that is a very fine point." — 5145. "When we, as we did 
last year, had an increase in the exports of manufactured 
goods to the amount of 20 million pounds sterling, we must 
have had before that a very considerable increase in the 
imports of raw materials " [and even in this way overexports 
are identical with overimports, and overproduction with over- 
commerce] " in order to produce this increased quantity of 
goods ? " — " Undoubtedly ; we must have had a very con- 
siderable balance to pay; that is, the balance must have been 
against us at the time, but in the long run the quotations of 
bills of exchange with America are in our favor, and we have 
received for some time large shipments of precious metals from 
America." 

5148. Wilson asks the arch usurer Chapman, whether he 
does not regard his high interest as a sign of great prosperity 
and a high rate of profit. Chapman, evidently surprised at 
the naivete of this sycophant, assents to this, of course, but 
is sincere enough to add the following clause : " There are 
some, who cannot help themselves in any other way; they 
have obligations to fulfill, and they must fulfill them, whether 
it be profitable or not ; but if it lasts " [the high rate of 
interest] " it would indicate prosperity." — Both of them 



628 Capitalist Production. 

forget that a high rate of interest may also indicate that, as it 
did in 185Y, the roving knights of credit are infesting the 
country, and that these gentlemen can afford to pay a high in- 
terest, because they pay it out of other people's pockets 
(whereby they take part in the fixing of the rate of interest for 
all others) and meanwhile live in grand style on anticipated 
profits. At the same time this may indeed result in a very 
profitable business for manufacturers and others. The re- 
turns become wholly deceptive by the loan system. This ex- 
plains also the following statements, which require no ex- 
planation so far as the Bank of England is concerned, because 
it discounts at a lower rate than others when the rate of 
interest is high. 

5156. " I may well say," says Chapman, ^' that the 
amounts of our discounts are at their maximum at the present, 
when we had a high rate of interest for such a long time." 
[Chapman said this on July 21, 1857, a few months before 
the crash.] — 515 Y. "In 1852 " [when the rate of interest 
was low] " they were not so high by far." For the business 
was indeed a great deal sounder then. 

5159. "If the market were overflowing with money 
. . . and the banking discount low, we should have a 
decrease of bills of excliange. . . . In 1852 we were in 
an entirely different phase. The exports and imports of the 
country were then nothing as compared to the present." — 
5161. " Under this high rate of discount our discounting 
business is as high as in 1854." [When the rate of interest 
was from 5 to 5^%.] 

Very amusing is that part of the testimony of Chapman, 
in which he shows that his class regard the money of the 
public indeed as their property and pretend to have a right 
to having the bills discounted by them always converted. 
The ingenuousness of the questions and answers is great. It 
becomes the duty of legislation to make the bills accepted by 
large firms always convertible ; to take pains that the Bank of 
England should under all circumstances continue to give 
discount to the bill brokers. And yet three of these bill 



Currency Under the Credit System. 629 

brokers failed in 185 Y for about 8 raillions, while their own 
capital was infinitesimal compared to their debts. — 5177. 
" Do you mean to say by this that in your opinion they " [that 
is bills accepted by the Barings or Loyds] " should be con- 
vertible by compulsion, in the way that a note of the Bank 
of England is now convertible into gold by compulsion ? " — 
" I am of the opinion, that it would be a very lamentable 
thing, if it were not discountable; a very extraordinary sit- 
uation, that a man would have to suspend payment, because 
he holds accepts by Smith, Payne & Co., to Jones, Loyd & 
Co., and cannot discount them." — 5178. " Is not an accept 
of the Barings an obligation, to pay a certain amount of 
money when the bill becomes due ? " — " That is quite right ; 
but Messrs. Baring, if they undertake such an obligation, like 
every merchant who accepts such an obligation, do not dream 
in the least that they shall have to pay in Sovereigns ; they 
figure on paying in the Clearing House." — 5180. " Do you 
mean, then, that a sort of machinery should be thought out, 
by means of which the public would be empowered to receive 
money before the bill becomes due, by having somebody else 
discount it ? " — " ISTo, not by the accepting party ; but if you 
mean to say that we shall not have the possibility to have 
commercial bills discounted, then we must change the whole 
constitution of things." — 5182. "You believe, then, that 
it " [a commercial bill] " should be convertible into money, 
exactly like a note of the Bank of England must be convertible 
into gold ? " — " Very decidedly, under certain circum- 
stances." — 5184. " You believe, then, that the institutions 
of currency should be arranged in such a way that a com- 
mercial bill of undoubted solidity should at all times be con- 
vertible in money like a bank note ? " — " That I 
believe." — 5185. "You do not go so far as to say either 
the Bank of England or anybody else should be compelled by 
law to convert it ? " — "I go indeed so far as to say that 
if we make a law for the regulation of the currency, we 
should take steps to prevent the possibility of inland com- 
mercial bills becoming inconvertible, to the extent that such 



630 Capitalist Production. 

bills are undoubtedly solid and legitimate." — This is tbe con- 
vertibility of the commercial bill against the convertibility of 
bank notes. 

5189. " The money dealers of the country represent in 
fact only the public." — So did Mr. Chapman later before 
the jury in the Davison case. See the Great City Frauds. 

.5196. " During the quarterly terms " [when the dividends 
are paid] " it is . . . absolutely necessary, that we 
should turn to the Bank of England. If you take 6 or 7 
millions out of the revenue of the state in anticipation of the 
dividends, somebody must be there, who will in the meantime 
advance this amount." — [In this case it is a question of a 
supply of money, not of capital or loan capital.] 

5169. " Every one familiar with our commercial world 
must know that if we are in such circumstances that treasury 
notes become unsalable, that obligations of the East Indian 
Company are completely useless, that the best commercial 
bills cannot be discounted, a great apprehension must reign 
among those whose business places them in a position where 
they must make payment immediately on simple demand in 
customary currency, and this is the case with all bankers. 
The effect of this is then that everybody doubles his reserves. 
]*^ow just look what the effect of this is in the whole country, 
when every country banker, of whom there are about 500, has 
to instruct his London correspondent to remit to him 5,000 
pounds sterling in bank notes. Even if we take such a small 
amount as this for an average, which is quite absurd, we ar- 
rive at 2^ million pounds sterling, which are withdrawn from 
circulation. How are they to be replaced ? " 

On the other hand the private capitalists, etc., who have 
money do not care to let go of it at any interest, for they 
say, according to Chapman, 5194: "We prefer to have no 
interest at all rather than to be in doubt, whether we can 
get the money when we need it." 

5173. "Our system is this: We have 300 million 
pounds sterling worth of obligations, the payment of which 
in coin of the realm may be demanded at any moment; and 
this coin of the realm, if we use all of it for this purpose. 



Currency Under the Credit System. 631 

amounts to 23 million pounds sterling, or thereabout; is not 
that a condition, which maj throw us into convulsions at any 
moment ? " Hence we have in times of crisis the sudden 
change of the credit system into a monetary system. 

Aside from the panic in the home market during crises, 
there can be any mention of the quantity of money only in 
so far as it concerns metal, which is the world money. And 
this is precisely what Chapman excludes; he speaks only of 
23 millions in bank notes. 

The same Chapman, 5218. " The original cause of the 
disturbance of the money-market " [in April and later in 
October] " was undoubtedly in the quantity of money required 
for the regulation of the quotations of bills of exchange, in 
consequence of the extraordinary imports of the year." 

In the first place, this reserve of world market money had 
then been reduced to its minimum. In the second place it 
served at the same time as a security for the convertibility of 
the credit money, the bank notes. It combined in this way 
two quite different functions, which, however, proceed both 
of them from the nature of money, since real money is 
always world money, and the credit money always rests upon 
the world money. 

In 1847, without the suspension of the Bank Acts of 1844, 
" the Clearing Houses could not have carried on their busi- 
ness." (5221.) 

That Chapman nevertheless had a suspicion of the coming 
crisis, is shown by the following statement: 5236. "There 
are certain conditions of the money-market (and the present 
one is not far removed from that), in which money is 
very difficult, and one has to have recourse to a bank." 

5239. " As for the amounts taken by us out of the bank 
on Friday, Saturday and Monday, October 19, 1847, we 
should have been only too grateful on the following Wednes- 
day, if we could have gotten back the bills of exchange; the 
money returned to us immediately after the panic was over." 
— On Tuesday, October 23, the Bank Acts were suspended, 
and this broke the crisis. 

Chapman believes (5274) that the bills running si- 



632 Capitalist Production. 

miTltaneously on London amounted to 100 or 120 million 
pounds sterling. This did not include the local bills on 
provincial places. 

6287. " While in October, 1856, the amount of the notes 
in the hands of the public rose to 21,155,000 pounds sterling, 
there was nevertheless a very extraordinary difficulty in 
raising money ; although the public had so much in its hands, 
we could not get our fingers on it." — This was due to 
the fear, caused by the panic, in which the Eastern Bank 
found itself for a time (March 1856). 

5190-92. As soon as the panic is over, " all bankers who 
make their profits out of interest begin at once to employ 
their money." 

5302. Chapman does not explain the unrest going with 
the decrease of the bank reserve out of the apprehension con- 
cerning the deposits, but attributes it to the fact that all 
those, who suddenly may be compelled to pay large sums 
of money, know very well that they may be driven to seek 
their last refuge in the bank, when a panic seizes the money- 
market ; and " when the bank has a very small reserve, it is 
not glad to receive us ; on the contrary." 

By the way it is nice to observe the way in which the 
reserve dwindles away as a really existing magnitude. The 
bankers keep a minimum for their current business either 
in their own hands or with the Bank of England. The bill 
brokers hold the " loose bank money of the countiy " without 
any reserve. And the Bank of England has nothing to offset 
its debt for deposits but the reserves of bankers and others, 
together with some public deposits, etc., which it permits to 
be drained to its very lowest level, for instance to 2 millions. 
Aside from these 2 millions of paper, then, this whole swindle 
has no other reserve but the metal reserve in times of crisis 
(and this reduces the reserve, because the notes, which come 
in to replace outgoing metal, must be annulled), and thus 
every reduction of this reserve by the expenditure of gold 
increases the crisis. 

5306. " If no money were available to settle the balances 
in the Clearing PTouse, T do not see that we could do anything 



Currency Under the Credit System. 633 

else but to come together and make our payments in first drafts, 
checks on the Treasury Department, Smith, Payne & Co., 
etc." — 5307. "That is to say, if the government should 
fail to supply you with means of circulation, you would create 
one for yourself ? " — ■ " What are we going to do ? The public 
comes in and takes the circulating medium out of our hands ; 
it does not exist." — ■ 5308. " Then you would simply do in 
London what is done in Manchester every day ? " — " Yes." 

Particularly good is the reply of Chapman to a question 
asked by Cayley, a Birmingham man of the Attwood school, 
with regard to Overstone's conception of capital. 5315. 
" It has been stated before this Committee, that it is not 
money, but capital, which is demanded in a panic like that 
of 1847 ; what is your opinion on this ? " — "I do not 
understand you; we deal only in money; I don't understand 
what you mean." — 5316. " If you mean thereby " [namely 
by commercial capital] " the mass of money belonging to 
himself, which a man has in his business, if you call that capi- 
tal, it forms generally a very small part of the money, with 
which he operates in his transactions by means of the credit 
given to him by the public " — that is, by the intervention 
of the Chapmans. 

5339. " Is it from lack of wealth that we suspend our 
cash payments ? — By no means. . . . We have no lack 
of wealth, but we move under a most artificial system, and 
when we have an immense superincumbent demand for our 
medium of circulation, it may lead to conditions, which pre- 
vent us from securing this medium of circulation. Should 
the entire commercial industry of the country be laid lame 
on this account ? Should we close all avenues of employ- 
ment ? — 5338. " Should the question be asked, what we 
want to maintain, whether the cash payments or the industry 
of the country, I know which of the two I should drop." 

Concerning the hoarding of bank notes " with the inten- 
tion of intensifying the panic, or drawing advantages from 
its results" [5358] he says that this may be done easily. 
Three large banks would be sufiicient. 5383. " Should it 
not be known to you, a man familiar with the great firms 



634 Capitalist Production. 

of our metropolis, that capitalists utilise these crises to make 
enormous profits out of the ruin of those, who fall victims ? " 
— " There can be no doubt of it." — And we may well believe 
Mr. Chapman on this score, although he finally broke his own 
neck in the attempt of making " enormous profits out of the 
ruin of his victims." For while his associate Gurney says 
" Every change in business is advantageous for him who is 
posted," Chapman says : " The one portion of society knows 
nothing about the other; there is, for instance, the manu- 
facturer, who exports to the continent, or who imports his raw 
material, he knows nothing of the other, who deals in gold 
bullion." (5046.) — And thus it happened, that one fine day 
Gurney and Chapman thmselves " were not posted " and went 
into an ill-famed bankruptcy. 

We have seen previously, that the issuing of notes does not 
signify an advance of capital in all cases. The following 
testimony of Tooke before the C. D. Committee of Lords, 
1848, proves merely that an advance of capital, even if ac- 
complished by the bank by an issue of new notes, does not 
signify straightway an increase in the number of circulating 
notes. 

3099. " Do you believe, that the Bank of England could 
extend its loans considerably, without bringing about an 
increased issue of notes ? " — " There are abundant facts at 
hand to prove this. One of the most striking examples was in 
1835, when the Bank made use of the West Indian deposits 
and of the loan from the East Indian Company to increase its 
loans to the public ; at the same time the amount of notes in the 
hands of the public actually decreased somewhat. . . . 
Something similar to this is noticeable in 1847 at the time 
of the paying of the railroad deposits in the Bank ; the securi- 
ties [in discount and deposits] rose to about 30 millions, 
while no appreciable effect took place on the amount of notes 
in the hands of the public." 

Aside from the bank notes the wholesale trade has another 
medium of circulation, which is far more valuable to it, 
namely the bills of exchange. Mr. Chapman showed us, how 



Currency Under the Credit System. 635 

essential it is for a regular flow of business that good bills of 
exchange should be taken in payment everywhere and under 
all conditions. If bills of exchange are no longer good, what 
in the world is to be done ? How do these two media of cir- 
culation stand towards one another ? 

Gilbart says on this score : " The restriction of the amount 
of the circulation of notes increases regularly the amount of 
the circulation of bills of exchange. The bills are of two 
kinds — commercial bills and banker's bills — if money be- 
comes scarce, then the money lenders say: "You draw on 
us and we will endorse," and when a provincial banker dis- 
counts a bill for some customer^ he does not give him cash 
money, but his own draft for 21 days on his London agent. 
These bills serve as a medium of circulation." (G. W. Gil- 
bart, An Inquiry into the Causes of the Pressure, etc., p. 31.) 

This is corroborated in a somewhat modified form by ISTew- 
march, B. A. 1857, No. 1426: " There is no connection be- 
tween the fluctuations in the amount of the circulating bills 
and those of the circulating bank notes . . . the only 
rather uniform result is . . . that as soon as a stringency 
in the money-market occurs, such as is indicated by a raising 
of the rate of discount, the volume of the circulation of bills is 
considerably increased and vice versa." 

However, the bills of exchange written in such times are 
by no means only the short bank bills mentioned by Gilbart. 
On the contrary, they are largely bills of accommodation, 
which represent no real business at all, or at least only trans- 
actions made for the purpose of drawing bills of exchange on 
them; we have given sufficient illustrations of both. Hence 
the "Economist" (Wilson) says in comparing the security 
of such bills with that of bank notes : " Bank notes payable 
on presentation can never stay out in excess, because the excess 
would always return to the bank for exchange, while two- 
months drafts may be issued in great superabundance, as 
there is no means of controlling their issue until they become 
due, when they may have been replaced by others. That a 
nation should admit the security of the circulation of bills 



636 Capitalist Production. 

payable at some future date, but raise doubts against a circu- 
lation of paper money payable on presentation, is completely 
unintelligible to us." (Economist, 1847, p. 572.) 

The quantity of the circulating bills is, therefore, like that 
of the bank notes, merely determined by the requirements of 
commerce; in ordinary times the circulation of bills running 
in the fifties together with about 39 millions in bank notes 
amounted to about 300 millions, and from 100 to 120 mil- 
lions of this were made out on London alone. 

The volume of the circulation of bills has no influence on 
the circulation of notes, and is influenced by the latter only 
in times of stringency of money, when the quantity of bills 
increases and their quality deteriorates. Finally, at the time 
of a crisis, the circulation of bills fails completely ; no man 
can make use of a promise to pay, since every one wants to 
accept only cash payment; only the bank note retains, at 
least so far in England, its ability to circulate, because the 
nation with its total wealth backs up the Bank of England. 



We have seen that even Mr. Chapman, though himself a 
magnate of the money-market in 1847, complained bitterly, 
that there were a few large money-capitalists in London 
strong enough to carry disorder into the whole money-market 
at any given moment and thereby to bleed the smaller money 
dealers. There were several large sharks of this kind, he 
said, who could considerably intensify a stringency, by selling 
one or two millions worth of consols and thereby taking an 
equal amount of bank notes (and at the same time of avail- 
able loan capital) out of the market. To transform a strin- 
gency into a panic by the same maneuver, the joint action of 
three large firms would be sufficient. 

The greatest capital power in London is, of course, the 
Bank of England, which, however, is prevented by its posi- 
tion as a semi-government institution from making too brutal 
a use of its power. ISTevertheless it also knows enough about 
ways and means of making money, particularly since the Bank 
Acts of 1844. 



Currency Under the Credit System. 637 

The Bank of England has a capital of 14,553,000 pounds 
sterling, and commands besides about 3 million pounds ster- 
ling of a " Remainder," that is, undistributed profits, and 
furthermore all moneys collected by the government for taxes, 
etc., which must be deposited there until' they are needed. 
Add to this the amount of other deposits, about 30 million 
pounds sterling in ordinary times, and the bank notes issued 
without a reserve, and we shall find that Newmarch made a 
rather conservative estimate, when he said (B. A. 1857, 'No. 
1889) : "I have convinced myself, that the total amount of 
the funds emjDloyed continually in the [London] money-mar- 
ket may be estimated at about 120 million pounds sterling; 
and of these 120 millions the Bank of England commands 
a very considerable portion, about 15 to 20%." 

So far as the Bank issues notes, which are not covered by 
the metal reserve in its vaults, it creates symbols of value, 
that form not only currency, but also additional, even if ficti- 
tious, capital for it to the nominal amount of these unpro- 
tected notes. And this additional capital yields an additional 
profit for it. — In B. A. 1857, Wilson asks ISTewmarch, No. 
1563 : " The circulation of a bank's own notes, that is, on 
an average the amount remaining in the hands of the public, 
forms an addition to the effective capital of that bank, does 
it not ? " — ^' Assuredly." — 1564. " All profits, then, which 
the bank derives from this circulation, is a profit arising from 
credit, not from a capital actually owned by it ? " — " Assur- 
edly." 

The same is true, of course, of the private banks issuing 
notes. In his answers ISTos. 1866 to 1868 Newmarch con- 
siders two-thirds of all bank notes issued by them (the last 
third has to be covered by a metal reserve in these banks) as 
" a creation of so much capital," because hard cash is saved 
to this amount. The profit of the banker may not be larger 
than that of other capitalists, notwithstanding all this. The 
fact remains, however, that he draws the profit out of this 
national saving of hard cash. The fact that a national saving 
becomes a private profit does not shock the bourgeois econo- 
mist in the least, since profit is under all circumstances the 



638 Capitalist Production. 

appropriation of national labor. Is there anything more in- 
sane than, for instance, the Bank of England in 1Y97 to 1817, 
whose notes have credit only by the backing of the state, tak- 
ing payment from the state, and from the public, in the form 
of interest on government loans for the power, granted to it 
by the state, to transform these same notes from paper into 
money and then to loan them to the state? 

The banks have still other means of creating capital. Ac- 
cording to the same ISTev^onarch the provincial banks, as men- 
tioned above, have the habit of sending their superfluous 
funds (that is, notes of the Bank of England) to London bill 
brokers, who send them discounted bills of exchange in re- 
turn. With these bills the bank serves its customers, since 
it follows the rule not to issue the bills of exchange received 
from its local customers any more, in order that the business 
transactions of these customers may not become known in their 
own neighborhood. These bills received from London do not 
only serve for the purpose of being issued to customers, who 
have to make payments direct to London, unless these custom- 
ers should prefer to get the bank's own draft on London ; they 
serve also for the settlement of payments in the province, for 
the endorsement of the bankers secures local credit for them. 
In Lancashire, Jor instance, all the local banks' own notes 
and a large portion of the notes of the Bank of England, have 
ueen crowded out of the circulation by such bills. {Ibidem, 
1568 to 1574.) 

We see here, then, how the banks create credit and capital, 
1) by the issue of their own notes, 2) by writing out drafts 
on London running as long as 21 days but paid to them in 
cash immediately on being written, and 3) by paying out 
discounted bills- of exchange, which are endowed with credit 
primarily and essentially by endorsement through the bank, 
at least for the local district. 

The pov/er of the Bank of England is shown in its regula- 
tion of the market rate of interest. In times of normal busi- 
ness it may happen, that the Bank, cannot prevent a moderate 
drain of gold from its metal reserve by raising the rate of dis- 



Currency Under the Credit System. 639 

count/*^^ because tlie demand for means of payment is satis- 
fied hj the private banks, stock banks and bill brokers, who 
have gained considerably in capital power during the last 
thirty years. In that case the Bank of England must use 
other means. But for critical moments, the statement made 
by Banker Glyn (of Glyn, Mills, Currie & Co.) before the 
C. D. 1848-57 still holds good: — 1709. " In times of great 
stringency in the country the Bank of England commands the 
rate of interest." — " In times of extraordinary stringency 
. . . when the discounts of the private bankers or brok- 
ers are relatively restricted, they fall to the Bank of England, 
and then it has the power to fix the market rate of interest." 

It is true, that the Bank of England, being a public in- 
stitution under government protection, cannot exploit its 
power ruthlessly, in the same way that private institutes may. 
For this reason Hubbard says before the Banking Committee 
B. A. 1857, 1^0. 2844: " Is it not true, that when the rate 
of discount is highest, the Bank of England gives the cheap- 
est service, and when lowest, then the brokers are the cheap- 
est ? " — " That will always be the case, for the Bank of Eng- 
land never comes down as low as its competitors, and when the 
rate is highest, it never goes quite so high." 

But nevertheless it is a serious event in business life, when 
the Bank of England draws the screw tighter in times of 
crisis, as the saying is, that is, when it raises the rate of in- 
terest, which is already above the average, still higher. " As 
soon as the Bank of England tightens the screw, all purchases 
for export into foreign countries cease . . . the export- 
ers wait, till the depression of prices has reached its lowest 

1°* In the general meeting of the stockholders of the Union Bank of London, on 
January 17, 1894, President Ritchie relates that the Bank of England raised the 
discount in 1893 from 2J4^ in July to 3 and 4% in August, and when it lost 
fully iyi million pounds sterling in gold in spite of this, it raised the rate of 
interest to 5%, whereupon gold flowed back to it and the bank rate was reduced 
to 4% in September and CTo in October. But this bank rate was not recognized 
in the market. " When the bank rate was 5%, the market rate was B%% and 
the rate for money 2j2%; when the bank rate fell to 4%, the rate of discount 
was 2fg% and the money rate l}i%; when the bank rate was 3%, the rate of 
discount was lHVo and the money rate a trifle lower." {Daily News, January 18, 
1894.)— F. E. 



640 Capitalist Production. 

point, and only tlien and not before do they buy. But when 
this point is reached, the quotations have once more become 
settled — gold ceases to be exported, before this lowest point 
of the depression is reached. Purchases of commodities for 
export may possibly bring back a part of the money sent 
abroad, but they come too late to prevent the drain." (G. W. 
Gilbart, An Inquiry into the Causes of the Pressure on the 
Money Market, London, 1840, p. 37.) — "Another effect of 
the regulation of the currency by means of foreign quotations 
on bills of exchange is that it brings about an enormous rate 
of interest in times of crisis." (L. c, p. 40.) — " The costs 
arising out of the restoration of the quotations on bills of ex- 
change fall upon the productive industry of the country, 
whereas in the course of this process the profit of the Bank 
of England is positively increased by the fact that it contin- 
ues its business with a smaller amount of precious metal." 
(L. c, p. 52.) 

But, says friend Samuel Gurney, " These great fluctua- 
tions of the rate of interest are advantageous for the bankers 
and money dealers — ■ all fluctuations in business are advan- 
tageous for him who is posted." And even though the Gur- 
neys skim the cream off the ruthless exploitation of tlie pre- 
carious condition of business, whereas the Bank of England 
cannot do this with the same liberty, nevertheless it also 
makes quite nice profits — ■ not to mention the private prof- 
its, which of their own account fall into the lap of the direc- 
tors, who have an exceptional opportunity to understand the 
general condition of business. According to a statement 
made before the Lord's Committee of 1817 on the matter of 
the resumption of specie payments these profits of the Bank 
of England for the entire period from 1797 to 1817 stood as 
follows : 

Bonuses and increased dividends 7,451,136 

New stock divided among proprietors 7,276,500 

Increased value of capital 14,553,000 

Total 29,280,636 

on a capital of 11,642,100 pounds sterling in 19 years. (D. 
Hardcastle, Banks and Bankers, 2nd edition, London, 1843, 



Currency Under the Credit System. 641 

p. 120.) If we estimate the total profits of the Bank of Ire- 
land, which also suspended specie payments in 179Y, by the 
same principle, we obtain the following result: 

Dividends as by returns due 1821 4, 736,085 

Declared bonus 1,225,000 

Increased assets 1,214,800 

Increased value of capital 4,185,000 

Total 11,360,885 

on a capital of 3 million pounds sterling, (Ibidem, p. 163.) 
Talk about centralisation! The credit system, which has 
its center in the so-called national banks and the great money 
lenders and usurers about them, is an enormous centralisation, 
and gives to this class of parasites a fabulous power, not only 
to despoil periodically the industrial capitalists, but also to 
interfere into actual production in a most dangerous man- 
ner — and this gang knows nothing about production and has 
nothing to do with it. The Acts of 1844 and 1845 are proofs 
of the growing power of these bandits, who are joined by the 
financiers and stock jobbers. 

Should any one still dream that these honorable bandits ex- 
ploit national and international production only in the interest 
of production and of the exploited themselves, he will surely 
be taught better by the following homily on the high moral 
dignity of the bankers : " The bank establishments are re- 
ligious and moral institutions. How^ often has not the fear 
of being seen by the vigilant and disapproving eye of his 
banker deterred the young business man from seeking the so- 
ciety of noisy and extravagant friends ? How anxious he is 
to stand well in the estimation of the banker, to appear al- 
ways respectable ! The knit brow of the banker has more in- 
fluence over him than the moral preaching of his friends ; does 
he not tremble to be suspected of being guilty of fraud or of 
the least false statement, for fear of causing suspicion, in con- 
sequence of which his banking accommodation might be re- 
stricted or cancelled ? The advice of the banker is more im- 
portant to him than that of the clergyman," (G. M. Bell, 
a Scotch bank director, in The Philosophy of Joint Stoch 
BanMng, London, 1840, pp. 46 and 4Y.) 

20 



64^ Capitalist Production. 



CHAPTEE XXXIV. 

THE CUEEENCY PEIKCIPLE AND THE ENGLISH BANK LAWS 

o-F 1844. 

[In a former work ^^^ the theory of Ricardo on the value of 
money as related to the prices of commodities has been ana- 
lysed; we can, therefore, confine ourselves here to the in- 
dispensable. According to Kicardo, the value of metallic 
money is determined by the labor time incorporated in it, but 
only so long as the quantity of money stands in the right pro- 
portion to the quantity and price of the commodities to^ be 
handled. If the quantity of the money rises above this pro- 
portion, its value falls, the prices of commodities rise; if its 
quantity falls below the normal proportion, then its value 
rises and the prices of commodities fall — assuming all other 
circumstances to remain unchanged. In the first case the 
country, in which this excess of gold exists, will export the 
depreciated gold and import commodities ; in the second case 
the gold will flow to those countries, in which it is held above 
its value, while the depreciated commodities flow from these 
countries to other markets, where they can obtain normal 
prices. " Since gold itself may become, both as coin and bul- 
lion, a token of value of greater or smaller magnitude than its 
bullion value, it is self-evident that convertible bank notes in 
circulation have to share the same fate. Although bank notes 
are convertible, i. e. their real value and nominal value agree, 
the aggregate currency consisting of metal and of convertible 
notes may appreciate or depreciate according as to whether 
it rises or falls, for reasons already stated, above or below the 
level determined by the exchange-value of the commodities in 
circulation and the bullion value of gold. . . . This de- 
preciation, not of paper as compared with gold, but of gold 

'""Karl Marx, A Contribution to the Critique of Political Economy, Berlin, 1859, 
pages 236 and following. 



English Bank Laws of 1844. 643 

and paper together, or of the aggregate currency of a country, 
is one of the principal discoveries of Eicardo, which Lord 
Overstone and Co. pressed into their service and made a fun- 
damental principle of Sir Robert Peel's Bank legislation of 
1844 and 1845." (L. c. p. 241.) 

We need not repeat here the demonstration of tlie incorrect- 
ness of this Eicardian theory, which is given in the same 
place. We are here merely interested in the way in which 
Eicardo's theses were elaborated by that school of bank theor- 
ists, who dictated the above named Bank Acts of Peel. 

" The commercial crises of the nineteenth century, namely, 
the great crises of 1825 and 1836, did not result in any new 
developments in the Eicardian theory of money, but they did 
furnish new applications for it. They were no longer iso- 
lated economic phenomena, such as the depreciation of the 
precious metals in the sixteenth and seventeenth centuries 
which interested Hume, or the depreciation of paper money 
in the eighteenth and early nineteenth centuries which con- 
fronted Eicardo; they were the great storms of the world 
market in which the conflict of all the elements of the capital- 
ist process of production discharge themselves, and whose 
origin and remedy were sought in the most superficial and 
abstract sphere of this process, the sphere of money-circula- 
tion. The theoretical assumption from which the school of 
economic weather prophets proceeds, comes down in the end 
to the illusion that Eicardo discovered the laws governing the 
circulation of purely metallic currency. The only thing that 
remained for them to do was to subject to the same laws the 
circulation of credit and bank note currency. 

" The most general and most palpable phenomenon in com- 
mercial crises is the sudden general decline of prices following 
a prolonged general rise. The general decline of prices of 
commodities may be expressed as a rise in the relative value 
of money with respect to all commodities, and the general rise 
of prices as a decline of the relative value of money. In 
either expression the phenomenon is described but not ex- 
plained. . . . The different wording leaves the problem 
as little changed as would its translation from German into 



644 Capitalist Production. 

English. Eicardo's theory of money was exceedingly con- 
venient, because it lends to a tautology the semblance of a 
statement of casual connection. Whence comes the periodic 
general fall of prices ? From the periodic rise of the relative 
value of money. Whence the general periodic rise of prices ? 
From the periodic decline of the relative value of money. It 
might have been stated with equal truth that the periodic rise 
and fall of prices is due to their periodic rise and fall. . . . 
The tautology once admitted as a statement of cause, the rest 
follows easily. A rise of prices of commodities is caused by 
a decline of the value of money and a decline of the value of 
money is caused, as we know from Eicardo, by a redundant 
currency, i. e., by a rise of the volume of currency over the 
level determined by its own intrinsic value and the intrinsic 
value of the commodities. In the same manner, the general 
decline of prices of commodities is explained by the rise of 
the value of money above its intrinsic value in consequence 
of an inadequate currency. Thus, prices rise and fall peri- 
odically, because there is periodically too much or too little 
money in circulation. Should a rise of prices happen to coin- 
cide with a contracted currency, and a fall of prices with an 
expanded one, it may be asserted in spite of those facts that 
in consequence of a contraction or expansion of the volume of 
commodities in the market which cannot be proved statis- 
tically, the quantity of money in circulation has, although not 
absolutely, yet relatively increased or declined. We have seen 
that according to Ricardo these universal fluctuations must 
take place even with a purely metallic currency, but that they 
balance each other through their alternations ; thus, e. g., an 
inadequate currency causes a fall of prices, the fall of prices 
leads to an export of commodities abroad, this export causes 
again an import of gold from abroad, which, in its turn, brings 
about a rise of prices ; the opposite movement taking place in 
case of a redundant currency, when commodities are imported 
and money is exported. But, since in spite of these universal 
fluctuations of prices which are in perfect accord with Ei- 
cardo's theory of metallic currency, their acute and violent 
form, their crisis form, belongs to the period of advanced 



English Bank Laws of 1844. 645 

credit, it is perfectly clear that the issue of bank notes is not 
exactly regulated by the laws of metallic currency. Metallic 
currency has its remedy in the import and export of precious 
metals, which immediately enter circulation and thus, by 
their influx or efflux, cause the prices of commodities to fall 
or rise. The same effect on prices must now be exerted by 
banks by the artificial imitation of the laws of metallic cur- 
rency. If gold is coming in from abroad it proves that the 
currency is inadequate, that the value of money is too high 
and the prices of commodities too low, and, consequently, that 
bank notes must be put in circulation in proportion to the 
newly imported gold. On the other hand, notes have to be 
withdrawn from circulation in proportion to the export of 
gold from the country. That is to say, the issue of bank notes 
must be regulated by the import and export of the precious 
metals or by the rate of exchange. Eicardo's false assump- 
tion that gold is only coin, and that therefore all imported 
gold swells the currency, causing prices to rise, while all ex- 
ported gold reduces the currency, leading to a fall of prices, 
this theoretical assumption is turned into a practical experi- 
ment of putting in every case an amount of currency in circu- 
lation equal to the amount of gold in existence. Lord Over- 
stone (the banker Jones Loyd), Colonel Torrens, Norman, 
Clay, Arbuthnot and a host of other writers, known in Eng- 
land as the adherents of the ' Currency Principle,' not only 
preached this doctrine, but with the aid of Sir Robert Peel 
succeeded in 1844 and 1845 in making it the basis of the pres- 
ent English and Scotch bank legislation. Its ignominious 
failure, theoretical as well as practical, following upon experi- 
ments on the largest national scale, can be treated only after 
we take up the theory of credit." (L. c. pages 255 to 259.) 

The critique of this school was furnished by Thomas Tooke, 
James Wilson (in the "Economist" of 1844 to 1847) and 
John FuUarton. But how incompletely they themselves had 
seen through the nature of gold, and how unclear they w^ re 
about the relation of money and capital, we have shown sev- 
eral times, particularly in chapter XXVIII of this volume. 
We quote here merely a few instances in connection with the 



646 



Capitalist Production. 



transactions of the Committee of the Lower House of 185Y 
concerning Peel's Bank Acts (B. C. 1857).— F. E.] 

J. G'. Hubbard, former Governor of the Bank of England, 
testifies : — 2400. " The effect of the gold exports . . . 
absolutely does not touch prices of commodities. It does, 
however, affect very much the prices of securities, because 
in proportion as the rate of interest changes, the values of- the 
commodities impersonating this interest must necessarily be 
strongly affected." — He presents two tables covering the years 
1834 to 1843 and 1844 to 1853, which prove that the move- 
ment of prices of fifteen of the most important commercial, 
articles was quite independent of the export and import of 
gold and of the rate of interest. On the other hand they prove 
a close connection between the export and import of gold, 
which is indeed the " representative of our capital seeking in- 
vestment," and the rate of interest. — " In 1847 a very large 
amount of American securities was transferred back to Amer- 
ica, also Russian securities to Russia, and other continental 
papers to the countries from which we derived our imports of 
corn." 

The fifteen principal articles mentioned in the following 
tables of Hubbard are: Cotton, cotton yarn, cotton fabrics, 
wool, wool cloth, flax, linen, indigo, raw iron, white sheet 
metal, copper, tallow, sugar, coffee, silk. 



I. From 183J4--181t3. 





Metal Reserve 


Market 
Rate of 


Of Fifteen Principal Articles 


Date 


Prices 


Prices 


Prices Un- 




of the Bank 


Discount 


Rose 


Fell 


changed 


1834, March 1 


9,104,000 


2.75% 





_ 


_ 


1835, March 1 


6,274,000 


3.75% 


7 


7 


1 


1836, March 1 


7,918,000 


3.25% 


11 


3 


1 


1837, March 1 


4,079,000 


5 ^ 
2.75% 

6 % 


5 


9 


1 


1838, March 1 


10,471,000 


4 


11 





1839, Sept. 1 


2,684,000 


8 


5 


2 


1840, Tune 1 
1840, Dec. 1 


4,571,000 


4.75% 

5.75% 


5 


9 


1 


8,642,000 


7 


6 


2 


1841, Dec. 1 


4,873,000 


5 ^ 
2.5 % 


3 


12 





1842, Dec. 1 


10,603,000 


2 


13 





1843, June 1 


11,566,000 


1 


14 


— 



English Bank Laws of 1844. 
II. From 18U-1853. 



647 





Metal Reserve 


Market 
Rate of 


Of Fifteen Principal Articles 


Date 


Prices 


Prices 


Prices Un- 




of the Bank 


Discount 


Rose 


Fell 


changed 


1844, March 1 


16,162,000 


2.25% 


— 


— 


— 


1845, Dec. 1 


13,237,000 


4.25% 


11 


4 


— 


1846, Sept. 1 


16,366,000 


8 % 


7 


8 


— 


1847, Sept. 1 


9,140,000 


6 % 


6 


6 


3 


1850, March 1 


17,126,000 


2.25% 


5 


9 


1 


1851, June 1 


13,705,000 


1.75% 


2 


11 


2 


1852, Sept. 1 


21,853,000 


1.75% 


9 


5 


1 


1853, Dec. 1 


15,093,000 


5 % 


14 




1 



Hubbard remarked with reference to this : " Just as in 
the 10 years from 1834 to 1843, so in the years from 1844 to 
1853 fluctuations in the gold of the bank were accompanied in 
every case by an increase or decrease of the loanable value of 
the money advanced at a discount; and on the other hand the 
changes in the prices of inland commodities showed a com- 
plete independence from the amount of the currency, as shown 
by the gold fluctuations of the Bank of England." (Barik 
Acts Report, 185 Y, II, pages 290 and 291.) 

Since the demand and supply of commodities regulates 
their market-prices, it becomes evident here, that Overstone is 
wrong when he identifies the demand for loanable capital (or 
rather the discrepancies of its supply from demand), as ex- 
pressed by the rate of discount, with the demand for actual 
" capital." The contention that the prices of commodities 
are regulated by the fluctuations in the quantity of the cur- 
rency is now concealed under the phrase that the fluctuations 
in the rate of discount express fluctuations in the demand for 
actual material capital, as distinguished from money-capital. 
We have seen that both ISTorman and Overstone actually made 
this contention before the same Committee, and that especially 
the latter was compelled to take refuge in very lame subter- 
fuges, until he was finally cornered. (Chapter XXVI.) It 
is indeed the old fib that changes in the quantity of gold ex- 
isting in a certain country, by increasing or reducing the quan- 
tity of the medium of circulation in that country, must raise 
or lower the prices of commodities in this country. If gold 
is exported, then, according to this currency theory, the prices 



648 Capitalist Production. 

of commodities must rise in tlie country importing this gold, 
and this must enhance the value of the exports of the gold ex- 
porting country on the market of the gold importing country; 
on the other hand, the value of the exports of the gold import- 
ing country would fall on the markets of the gold exporting 
country, while it would rise in the home country, which re- 
ceives the gold. But in fact the reduction of the quantity of 
gold raises only the rate of interest, whereas an increase in 
the quantity of gold lowers the rate of interest; and were it 
not for the fact that the fluctuations of the rate of interest are 
taken into account in the determination of cost-prices, or in 
the determination of demand and supply, the prices of com- 
modities would be wholly unaffected by them. 

In the same report IST. Alexander, Chief of a great Indian 
firm, expresses himself in the following manner on the heavy 
drains of silver to India and China about the middle of the 
fifties, partly in consequence of the Chinese Civil War, which 
checked the sale of English fabrics in China, and partly of 
the epidemic among silk worms in Europe, which reduced the 
output of silk in Italy and France considerably : 

4337. " Is the drain toward China or India." — " They 
send the silver to India, and with a goodly portion of it they 
buy opium, all of which goes to China in order to form a 
fund for the purchase of silk; and the condition of the mar- 
kets in India (in spite of the accumulation of silver there) 
makes it more profitable for the merchant to send out silver 
than to send fabrics or other English factory goods." — ■ 4338. 
" Did not a heavy drain come out of France, by which we se- 
cured the silver ? " — " Yes, a very heavy one." — 4344. " In- 
stead of importing silk from France and Italy, we ship it 
there in large quantities, both Bengal and Chinese." 

In other words, silver, the money metal of that continent, 
was sent to Asia instead of commodities, not because the prices 
of commodities had risen in the country which had produced 
them (England), but because prices had fallen on account of 
overimport in that country which received them ; and this in 
spite of the fact that the silver was received by England from 
France and had to be paid partlj^ in gold. According to the 



English Bank Laws of 1844. 649 

«> 
Currency Theory prices should have fallen by such imports in 

England and risen in India and China. 

Another illustration. Before the Lords' Committee (C. D. 
1848-1857), Wylie, one of the first Liverpool merchants, tes- 
tifies as follows: — 1994. " At the end of 1845 there vs^as no 
better paying business and none that yielded greater profits 
[than cotton spinning]. The supply of cotton was large and 
good, workable cotton could be had at 4 d. per pound, and 
such cotton could be spun into good second mule twist No. 40 
at about 8 d. total expense to the spinner. This yarn was sold 
in large quantities in September and October, 1845, and 
equally large contracts made for delivery at 10^ and 11^ d. 
per pound, and in some instances the spinners realised a profit 
which equalled the purchase price of the cotton." — 1996. 
" The business remained profitable until the beginning of 
1846."— 2000. "On March 3, 1844, the cotton supply 
[672,042 bales] was more than double of what it is today 
[on March 7, 1848, when it was 301,070 bales], and yet the 
price was 1^ d. per pound dearer." [6:| d. as against 5 d.] 
— 'At the same time yarn, good second mule twist IsTo. 40, 
had fallen from 11| to 12 d. to 9^ d. in October and 7f d. at 
the end of December, 1847; yarn was sold at the purchase 
price of the cotton from which it had been spun (Ibidem^ No. 
2021 and 2023). This proves the self interest of Overstone's 
wisdom to the effect that money is supposed to be " Dearer " 
w^hen capital is " scarce." On March 3, 1844, the bank rate 
of interest stood at 3% ; in October and November, 1847, it 
rose to 8 and 9% and was still 4% on March 7, 1848. The 
prices of cotton were depressed far below that price which cor- 
responded to the condition of the supply, by the complete 
stopping of sales and the panic with its correspondingly high 
rate of interest. The consequence of this was on the one hand 
an enormous decrease of the imports in 1848, and on the 
other a decrease of production in America ; consequently a 
new rise in cotton prices in 1849. According to Overstone 
the commodities were too dear, because there was too much 
money in the coimtry. 

2002. " The recent deterioration in the condition of the 



650 Capitalist Production. 

cotton industry is not due to tlie lack of raw materials, since 
the price is lower, although the supply of raw cotton is con- 
siderably reduced." But Overstone tangles himself up in a 
nice confusion of the price, or value, of commodities, with 
the value of money, that is, the rate of interest. In his re- 
ply to question 2026, Wylie sums up his general judgment of 
the Currency Theory, on which Cardwell and Sir Charles 
Wood based in May, 184Y, their contention that it would be 
necessary " to carry the Bank Act of 1844 out in its full 
scope." — " These principles seem to me to be of a nature to 
give to money an artificially high value and to all commodities 
a ruinously low value." — He says furthermore concerning the 
effects of this Bank Act on business in general : " Since four 
months' bills of exchange, which are the regular drafts of 
manufacturing towns on merchants and bankers for purchased 
commodities intended for export to the United States, could 
no longer be discounted except at great sacrifices, the carry- 
ing out of orders was prevented to a large degree, until after 
the Government Letter of October 25." [Suspension of Bank 
Acts], "when these four months' bills became once more dis- 
countable." (2097.) — We see, then, that the suspension of 
this Bank Act was felt as a relief also in the provinces. — 
2102. " Last October [1847] nearly all American buyers, 
who purchase commodities here, immediately curtailed their 
purchases as much as possible ; and when the news of the dearth 
of money reached America, all new orders stopped." — 2134. 
" Corn and sugar were special cases. The corn market was 
affected by the crop prospects, and sugar was affected by the 
enormous supplies and imports." — 2163. "Of our money 
obligations to America . . . many were liquidated by 
forced sales of consigned goods, and many, I fear, were liqui- 
dated by bankruptcies here." — 2196. " If I remember cor- 
rectly, as much as 70% interest was paid on our Stoch Ex- 
change in October, 181^1." 

[The crisis of 1837, with its protracted aftereffects, which 
were followed in 1842 by a regular aftercrisis, and the self- 
interested blindness of the industrials and merchants, who 
would not notice any overproduction to save their lives — 



English Bank Laws of 1844. ^5^ 

for such a thing was a nonsense and an impossibility according 
to vulgar economy — had ultimately accomplished that con- 
fusion of thought, which permitted the Currency School to 
put their dogma into practice on a national scale. The Bank 
legislation of 1844 and 1845 was passed. 

The Bank Act of 1844 divides the Bank of England into 
an issue department for notes and a banking department. The 
issue department receives securities, principally government 
debts, to the amount of 14 millions and the entire metal treas- 
ure, which shall consist of not more than one-quarter in silver, 
and issues notes to the full amount of both of them. To the 
extent that these are not in the hands of the public, they are 
held in the banking department and form its ever ready re- 
serve together with the small amount of coin required for 
daily use (about one million). The issue department gives 
to the public gold for notes and notes for gold ; the remainder 
of the transactions with the public is carried on by the bank- 
ing department. The private banks authorised in England 
and Wales to issue their own notes retain this privilege, but 
their issue of notes is fixed ; if one of these banks stops issuing 
its own notes, then the Bank of England may raise its uncov- 
ered amount of notes by two-thirds of the deposited allowance ; 
in this way its allowance rose by 1892 from 14 to 16|- million 
pounds sterling (exactly 16,450,000 pounds sterling). 

For every five pounds in gold, then, which leave the bank 
treasury, a five pound note returns to the issue department and 
is destroyed ; for every five sovereigns going into the treasury 
a new five pound note passes into circulation. In this way 
Overstone's ideal paper circulation, which follows strictly the 
laws of metallic circulation, is practically carried out, and by 
this means crises are forever made impossible, according to 
the claims of the Currency advocates. 

But in reality the separation of the Bank into two independ- 
ent departments robbed the management of the possibility 
of disposing freely of its entire available means in critical mo- 
ments, so that cases might occur, in which the banking de- 
partment might be confronted with a bankruptcy, while the 
issue department still possessed several millions in gold and 



652 Capitalist Production. 

its entire l-i millions of securities untouched. And this could 
take place so much more easily, as there is one period in al- 
most every crisis, when heavy exports of gold flow to foreign 
countries, which must be covered in the main by the metal re- 
ser\^e of the bank. But for every five pounds in gold, which 
then go to foreign countries, the circulation of the home coun- 
try is deprived of one five pound note, so that the quantity of 
the currency is reduced precisely at a time, when the largest 
quantity of it is most needed. The Bank Act of 1844 thus di- 
rectly challenges the commercial world to think betimes of 
laying up a reserve fund of bank notes on the eve of a crisis, 
in other words, to hasten and intensify the crisis ; by this arti- 
ficial intensification of the demand for money accommodation, 
that is for means of payment, and its simultaneous restriction 
of the supply, which take effect at the decisive moment, this 
Bank Act drives the rate of interest to a hitherto unknown 
hight ; hence, instead of doing away with crises, the Act rather 
intensifies them to a point, where either the entire commer- 
cial world must go to pieces, or the Bank Act. Twice, on 
October 25, 1847, and on November 12, 1857, the crisis had 
risen to this culmination ; then the government released the 
Bank from its limitation in the matter of issuing notes, by 
suspending the Act of 1844, and this sufficed in both cases to 
break the crisis. In 1847 the assurance sufficed, that bank 
notes would again be issued for first class securities, in order 
to bring to light the 4 to 5 millions of hoarded notes and throw 
them back into circulation; in 1857 the issue of notes exceed- 
ing the legal amount did not quite reach one million, and this 
was out for a very short time. 

It may also be noted that the legislation of 1844 still shows 
traces of a recollection of the first twenty years of the nine- 
teenth century, the time of the suspension of specie payments 
of the bank and the depreciation of notes. The fear that the 
notes might lose their credit is still plainly visible. But this 
is a very groundless fear, since already in 1825 the issue of 
some discovered old supply of one pound notes, which had been 
out of circulation, broke the crisis and proved, that even then 
the credit of the notes remained unshaken in times of the most 



English Bank Lmvs of 1844 ^53 

universal and strong distrust. And tliis is easily explained. 
For the entire nation backs up these symbols of value with its 
credit.— F. E.] 

Let us novs^ listen to a few statements on the effect of the 
Bank Act. John Stuart Mill believes that the Bank Act of 
1844 kept down overspeculation. Happily this wise man 
spoke on June 12, 1857. Four months later the crisis had 
broken out. He literally congratulates the " bank directors 
and the commercial public in general " on the fact that they 
" understand the nature of a commercial crisis far better than 
formerly, and the very great injury which they inflict upon 
themselves and the public by promoting overspeculation." (B. 
a, 1857, :N'o. 2031.) 

Wise Mr. Mill thinks that, if one pound notes are issued 
" as loans to manufacturers and others, who pay wages 
, . . then the notes may get into the hands of others 
who spend them for purposes of consumption, and in this case 
the notes constitute in themselves a demand for commodities 
and may temporarily tend to promote a raise in prices." Mr. 
Mill assumes, then, that the manufacturers will pay higher 
wages, because they pay them in paper instead of gold ? Or 
does he believe that when a manufacturer receives his loan in 
100 pound notes and changes them for gold, then these, wages 
would constitute less of a demand than they would when paid 
at the same time in one pound notes ? And does he not know 
that, for instance, in certain mining districts wages were paid 
in notes of local banks, so that several laborers together re- 
ceived a five pound note ? Does this increase the demand for 
them ? Or will the bankers advance money to the manufac- 
turers more easily in small than in large notes, and make the 
loan larger ? 

[This peculiar fear of one pound notes on the part of Mill 
would be inexplicable, if his whole work on political economy 
did not show his eclecticism, which recoils from no contradic- 
tions. On the one hand he agrees in many things with Tooke 
against Overstone, on the other hand he believes in the deter- 
mination of the prices of commodities by the quantity of the 
existing money. He is thus by no means convinced, that, all 



654 Capitalist Production. 

other eircumstances remaming unchanged, a sovereign wanders 
into the vaults of the Bank for everj one pound note issued. 
He fears that the quantity of the currency could be increased 
and thereby depreciated, that is, the prices of commodities 
might be enhanced. This and nothing else is concealed be- 
hind his above-mentioned apprehension. — F. E.] 

Concerning the bipartition of the Bank, and the excessive 
precaution to safeguard the cashing of notes, Tooke expresses 
himself before the C. D. 1848-57 as follows: 

The greater fluctuations of the rate of interest in 1847, as 
compared with 1837 and '39, are due merely to the separation 
of the Bank into two departments (3010). — " The security of 
the banknotes was not affected, neither in 1825, nor in 1837 nor 
in 1839 (3015). — ^ The demand for gold in 1825 aimed only 
to fill out the vacant space created by the complete disavowal 
of the one pound notes of the provincial banks; this vacant 
space could be filled out only by gold, until the Bank of Eng- 
land also issued one pound notes (3022). — ^ In ISTovember and 
December, 1825, not the least demand existed for gold to ex- 
port (3023). 

" As for a disavowal of the Bank at home and abroad, a 
suspension of the payment of dividends and deposits would 
have much more serious consequences than a suspension of 
payment on bank notes (3028). 

3035. Would you not say that every circumstance, which 
would in the last instance endanger the convertibility of the 
bank notes, might create new and serious difficulties in a mo- 
ment of commercial stringency ? — " jSTot at all." 

In the course of 1847 " an increased issue of notes might, 
perhaps, have contributed to replenish the gold reseiwe of the 
Bank, as it did in 1825." (3058). 

Before the Committee on B. A. 185'i(, JSTewmaroh testifies: 
1357. " The first bad effect ... of this separation of 
the two departments (of the Bank) and of the necessarily re- 
sulting bipartition of the gold reserve was that the banking 
business of the Bank of England, that is, that entire branch 
of its operations, which brought it into direct touch with the 
commerce of the country, was continued with only one-half of 



English Bank Laws of 1844. 655 

its former reserve. In consequence of this division of the re- 
serve it Iiappened that, as soon as the reserve of the banking 
department shrank in the least, the Bank was compelled to 
raise its rate of discount. This reduced reserve thus caused 
a series of abrupt changes in the rate of discount." — " Of 
such changes there have been since 1844 " [until June, 1857] 
" some 60 in number, whereas they amounted to hardly one 
dozen before 1844 within a similar period." 

Of special interest is the testimony of Palmer, who was a 
director of the Bank of England since 1811 and for a while 
its Governor, before the Lords' Committee on C. D. 1848-57 : 

828. " In December, 1825, the Bank had retained only 
about 1,100,000 pounds sterling in gold. At that time it 
would have failed inevitably, if this act had existed then 
[meaning the Act of 1844]. In December it issued, I believe, 
5 or 6 million notes in one week, and this relieved the panic 
of that time considerably." 

825. "The first period [since July 1, 1825], when the 
present bank legislation would have collapsed, if the Bank 
had attempted to carry its hitherto initiated transactions 
through, was on Bebmary 28, 1837. There were then from 
3,900,000 to 4,000,000 pounds sterling in the possession of 
the Bank, and it would have retained no more than 650,000 
pounds sterling in reserve. Another period is 1839, and it 
lasted from July 9 to December 5." — 826. "What was the 
amount of the reserve in this case ? " — " The reserve was minus 
altogether 200,000 pounds sterling on September 5. On ISTo- 
vember 5, it rose to about 1 or 1^ millions." — 830. " The 
Act of 1844 would have prevented the Bank from assisting 
the American business in 1837." — " Three of the principal 
American firms failed. . . . ISTearly every firm in the 
American business was ruled out of credit, and if the Bank 
had not come to the rescue, I do not believe that more than 
one or two firms could have maintained themselves." — 836. 
" The panic of 1837 is not to be compared with that of 1847. 
That of 1837 confined itself mainly to the American busi- 
ness." — 838. (At the beginning of June the management of 
the Bank discussed the question, how to remedy the panic.) 



656 Capitalist Production. 

" Whereupon some of the gentlemen defended the view 
. . . that the correct principle would be to raise the rate of 
interest, so that the prices of commodities would fall ; in brief, 
to make money dear and commodities cheap, by which the for- 
eign payment would be accomplished." — 906. " The intro- 
duction of an artificial limitation of the powers of the Bank by 
the Act of 1844, in place of the old and natural limit of its 
powers, that is, the actual amount of its metal supply, makes 
business artificially difiicult and thus effects prices in a way 
which was quite unnecessary without this Act." — 968. "Un- 
der the effect of the Act of 1844 the metal reserve of the Bank, 
under ordinary circumstances, cannot be reduced materially 
below 9^ millions. This would create a pressure on prices 
and credit, which would bring about such a change in the for- 
eign exchange rates, that the gold imports would rise and in- 
crease the amount of gold in the issue department." — 996. 

" Under the present limitation you [the Bank] have not 
command of silver which is required in times when silver is 
needed in order to affect foreign rates." — 999. " What was 
the purpose of the rule limiting the silver supply of the Bank 
to one-fifth of its metal reserve ? " — " I cannot answer this 
question ! " 

The purpose was to make money dearer ; so was, aside from 
the Currency Theory, the separation of the two bank depart- 
ments and the compulsion for Scotch and Irish banks to hold 
gold in reserve for the issue of notes beyond a certain amount. 
This brought about a decentralisation of the national metal 
supply, which rendered this supply less able to correct un- 
favorable bill rates. All these rules aim at a raise of the rate 
of interest : That the Bank of England shall not issue notes 
beyond 14 millions except against its gold reserve; that the 
banking department shall be managed like an ordinary bank, 
pressing the rate of interest down when money is plentiful and 
driving it up when money is scarce ; the limitation of the sil- 
ver supply, the principal means of rectifying the rates of bills 
on the continent and in Asia ! the rules concerning the Scotch 
and Irish banks, who never need any money for export and 
yet must keep it now under the pretence of an actually imag- 



English Bank Lazvs of 1844. 657 

inary convertibility of their notes. The fact is that the Act 
of 1844 caused for the first time in 1857 a run on the Scotch 
banks for gold. ISTor did the new bank legislation make any 
distinction between a drain of gold toward foreign countries 
and a drain to inland markets, although their effects are evi- 
dently different. Hence the continual great fluctuations of 
the market rate of interest. With reference to silver Palmer 
says twice, 'No. 992 and 994, that the Bank can buy silver 
for notes only when the rates on bills are favorable to England, 
so that silver is superfluous; for (1003) "the only purpose 
for which a considerable portion of the metal reserve may be 
kept in silver is that of facilitating foreign payments during 
the time when the rates on bills are against England." — 1008. 
"• Silver is a commodity which, being money in all the rest of 
the whole world, is for this reason the most fitting commodity 
. . . Eor this purpose" [payments abroad]. "Only 
the United States have taken exclusively gold during recent 
times." 

In his opinion the Bank would not have to raise the rate of 
interest above its old level of 5% in times of stringency, so 
long as no unfavorable bill rates draw the gold to foreign conn- 
tries. Were it not for the Act of 1844, the Bank would then 
be able to discount all first class bills presented to it without 
any difficulty. [1018 to 20.] But with the Act of 1844, 
and in the condition, in which the Bank was in October, 1847, 
" there was no rate of interest which the Bank could ask from 
creditable firms, which they would not have paid willingly in 
order to continue their payments." And this high rate of in- 
terest was precisely the purpose of the Act. 

1029. " I must make a great distinction between the effect 
of the rate of interest on the foreign demand [for precious 
metal] and a raise of the rate of interest for the purpose of 
stemming a rush on the bank during a period of lacking credit 
inland." — 1023. " Before the act of 1844, when the rates 
were in favor of England, and unrest, yea, a positive panic, 
reigned in the country, no limit was set to the issue of notes, 
by which alone this condition of stringency could be relieved." 

So speaks a man who had sat 39 years in the management 

SP 



658 Capitalist Production. 

of the Bank of England. Let ns now hear a private banker, 
Twells who had been an associate of Spooner, Attwoods & Co. 
since 1801. He is the only one among all the witnesses be- 
fore the B. C. 1857^ who gives us an insight into the actual 
condition of the country and who sees the approach of the 
crisis. For the rest he is a sort of Little-Shilling-Man from 
Birmingham, for his associates, the brothers Attwood, are the 
founders of this school. (See A Contribution to the Critique 
of Political Economy, p. 100.) He testifies: 4488. "How 
do you think the Act of 1844 has operated ? " — " Should I 
answer you as a banker, I would say that it has operated splen- 
didly, for it has furnished to the bankers and [money-] cap- 
italists of all sorts a rich harvest. But it has operated very 
badly for the honest and thrifty business man, who needs 
steadiness in discount, in order that he may make his arrange- 
ments with confidence. ... It has made the lending of 
money a very profitable business." — 4489. The Bank Act 
" Enables the London Stock Bank to pay to its stockholders 
20 to 22% ? "— " One of them paid recently 18%, and I be- 
lieve another 20% ; they have good grounds for standing de- 
terminedly by the Bank Act." — 4490. " Small business men 
and respectable merchants, who have no large capital . , . 
it pinches them hard. . . . The only means which I have 
of learning this is such a surprising quantity of their drafts, 
which are not paid. These drafts are always small, about 20 
to 100 pounds sterling, many of them are not paid and go back 
for lack of payment to all parts of the country, and this is al- 
ways a sign of stringency among — the small dealers." — 
4494. He declares that the business is not profitable now. 
His following remarks are important, because he saw the la- 
tent existence of the crisis, when none of the others suspected 
it as yet. 

4494. " The prices in Mincing Lane keep up pretty well 
so far, but nothing is sold, one cannot sell anything at any 
price; one maintains himself at the nominal price." — 4495 
He relates the following case : A Frenchman sends to a broker 
in Mincing Lane commodities for 3,000 pounds sterling for 
sale at a certain price. The broker cannot make the price, 



English Bank Laws of 1844. 659 

the Frenchman cannot sell below his price. The commodities 
remain unsold, but the Frenchman needs monej. The broker 
therefore makes him an advance of 1,000 pounds sterling in 
such a way, that the Frenchman draws a check of 1,000 pounds 
sterling for three months on the broker with his commodities 
for a security. At the end of the three months the bill be- 
comes due, but the commodities are still unsold. The broker 
must then pay for the bill, and although he has security for 
3,000 pounds sterling, he cannot raise them and gets into 
difficulties. In this way one drags down another. — 4496. 
" As for the heavy exports — ■ when the business is depressed 
in the home market, it calls forth necessarily a heavy export." 

— 4497. " Do you believe that the home consumption has 
decreased ? " — " Very considerably — quite enormously — ■ 
the small dealers are the best authority in this." — 4498. 
" IsTevertheless the imports are very large ; does not that indi- 
cate a strong consumption ? " — " Yes, if you can sell ; but 
many warehouses are full of these things; in the example, 
which I have just related, 3,000 pounds sterling worth of com- 
modities have been imported, which are unsalable." 

4514. " If money is dear, would you say that capital is 
then cheap ? " — " Yes, sir." — This man, then, is by no means 
of Overstone's opinion that a high rate of interest is the same 
as dear capital. 

The following shows how the business is carried on now. 

— 4516. ..." Others go in very heavily, do an enor- 
mous business in exports and imports, far beyond the limit 
to which their capital entitles them ; there cannot be the least 
doubt about this. These people may be lucky in this; they 
may make great fortunes by some lucky stroke and pay up 
everything. This is in a large measure the system, by which 
nowadays a considerable portion of the business is carried on. 
Such people are willing to lose 20, 30 and 40% on a shipment ; 
the next transaction may bring it back to them. If they fail 
in one thing after another, they are gone; and that is pre- 
cisely the case which we have seen often enough of late ; busi- 
ness firms have failed, without leaving one shilling's worth of 
.assets." 



66o Capitalist Production. 

4791. " The low rate of interest [during the last ten 
years] militates indeed against the bankers, hut without lay- 
ing the business books before you, I should have much diffi- 
culty in explaining to you, how much higher the profit [his 
own] is now than formerly. When the rate of interest is 
low, in consequence of excessive issues of notes, we have con- 
siderable deposits ; when the rate of interest is high, it brings 
us direct profits." — 4794. " When money may be had at a 
moderate rate of interest, we' have more demand for it ; we 
loan more; it works this way [for us, the bankers]. When 
it rises, we get more for it than when it is cheap ; we get more 
than we ought to have." 

We have seen that the credit of the notes of the Bank of 
England is considered impregnable by all experts. l^Teverthe- 
less the Bank Act absolutely ties up nine to ten millions in 
gold for the convertibility of these notes. The sacredness and 
inviolability of this reserve is here carried much farther than 
among the hoard makers of olden times. Mr. Brown (Liver- 
pool) testifies, C. D. 1848-57, 2311 : " Concerning the good 
derived at that time from this money [the metal reserve in 
the issue department], it might just as well have been thrown 
into the sea ; for not the least bit of it could be used, without 
breaking the Act of Parliament." 

The building contractor, E. Capps, the same one who has 
been mentioned once before, and whose testimony is borrowed 
also to illustrate the modem building system in London (Vol- 
ume II, chapter XII, pages 266 and 267), sums up his opin- 
ion of the Bank Act of 1844 in the following way (B. A. 
1857) : 5508. " You are, then, in general of the opinion that 
the present system [of bank legislation] is a very apt institu- 
tion for bringing the profits of industry periodically into the 
money bag of the usurer ? " — " That is my opinion. I know 
that it has worked that way in the building business." 

We have already mentioned that the Scotch banks were 
pushed by the Bank Act of 1845 into a system approaching the 
English. They were placed under the obligation to hold gold 
in reserve for their issue of notes beyond a limit fixed for 
each bank. What the effect of this was, may be seen from 



English Bank Laws of 1844. 661 

the following testimony before the Bank Committee, 1857. 

Kennedy, Director of a Scotch bank: 3375. "Was there 
anything in Scotland that might be called a circulation of 
gold, before the introduction of the Act of 1845 ? "— " Noth- 
ing of the kind." — 3376. " Has an additional circulation 
of gold ensued since then ? " — " Not in the least ; the people 
dislike gold."— 3450. " The sum of about 900,000 pounds 
sterling in gold, which the Scotch banks must keep since 1845, 
are in my opinion merely injurious and " absorb unprofitably 
an equal portion of the capital of Scotland." 

Furthermore Anderson, Director of the Union Bank of 
Scotland: 3558. ." The only heavy demand for gold made on 
the part of the Scotch banks upon the Bank of England oc- 
curred on account of the foreign rates of exchange 1 " — " That 
is so ; and this demand is not reduced by the fact that we keep 
gold in Edinburgh." — 3590. " So long as we deposited the 
same amount of securities in the Bank of England " [or in 
the private banks of England] " we have the same power as 
before to create a drain of gold from the Bank of England." 

Finally we quote an article from the '' Economist " (Wil- 
son) : " The Scotch banks keep unemployed amounts of cash 
with their London agents; these keep them in the Bank of 
England. This gives to the Scotch banks, within the limits of 
these amounts, command over the metal reserve of the bank, 
and here it is always in the place where it is needed, when 
foreign payments are to be made." — This system was dis- 
turbed by the Act of 1845 : " In consequence of the act of 
1845 for Scotland a strong outpour of gold coin from the 
Bank of England has taken place lately, in order to meet a 
mere possible demand in Scotland, which would probably 
never occur. — Since that time a considerable amount finds it- 
self tied up regularly in Scotland, and another considerable 
amount is continually under way between London and Scot- 
land. If a time comes when a Scotch banker expects an in- 
creased demand for his notes, a box of gold is sent on from 
London; if this time is past, the same box goes back to Lon- 
don, generally without having been opened." (Economist, 
October 23, 1847.) 



662 Capitalist Production. 

[And what does the father of the Bank Act, Banker Sam- 
uel Jones Loyd, alias Lord Overstone, say to all this? 

He repeated even in 1848 before the Lords' Committee on 
C. D. that " a money stringency and a high rate of interest, 
caused by a lack of sufficient capital, cannot be relieved by an 
increased issue of bank notes" (1514), in spite of the fact 
that the mere permission to increase the issue of notes, given 
by the government letter of October 25, 1847, had sufficed to 
break the point of the crisis. 

He sticks to the idea that " the high rate of interest and the 
depressed condition of the manufacturing industry was the 
necessary consequence of the reduction of the material capital 
available for industrial and commercial purposes" (1604). 
And yet the depressed condition of the manufacturing indus- 
try had for months consisted in the fact that the material com- 
modity-capital was filling the warehouses to overflowing and 
was almost unsalable; so that for this reason the material pro- 
ductive capital was wholly or partly fallow, in order not to 
produce still more unsalable commodity-capital. 

And before the Bank Committee of 1857 he said: By a 
strict and prompt adherence to the principles of the Act of 
1844 everything has passed off with regularity and ease, the 
money system is secure and unshaken, the prosperity of the 
country is undisputed, the public confidence in the Act of 
1844 is daily gaining in strength. If this Committee desires 
still further practical proofs of the soundness of the princi- 
ples on which this act rests, and of the beneficent consequences 
which it has guaranteed, then the true and sufficient answer is 
this : Look about you ; consider the present condition of the 
business of this country; consider the satisfaction of the peo- 
ple; consider the wealth and prosperity of all classes of so- 
ciety; and then, after you have seen all this, this Committee 
will be able to decide, whether it will prevent a continuation 
of an Act, under which such success has been obtained," (B. 
C. 1857, m. 4189.) 

To this song of praise, which Overstone emitted before the 
Committee on July 14, replied the song of defiance on N"n- 
vember 12, of the same year, in the shape of the letter to tbo 



English Bank Lazvs of 1844. 663 

management of the Bank, in which the government suspended 
the miracle-working law of 1844, in order to save what could 
still be saved. — F. E.] 



CHAPTER XXXV. 

PEECIOTJS METAI.S AND EATES OF EXCHANGEl. 

I. The Movements of the Gold Reserve. 

CoNCEEKiNG the hoarding of notes in times of stringency we 
remark, that in such cases the hoarding of precious metals is 
repeated, which used to be resorted to in restless times during 
the most primitive conditions of society. The Act of 1844 
is interesting in its effects for the reason that it seeks to trans- 
form all the precious metals existing in a certain country into 
currency; it seeks to identify a discharge of gold with a con- 
traction of the currency and an incoming flood of gold with 
an expansion of the currency. And so it happened that the 
experiment proved the contrary. With one sole exception, 
which we shall mention immediately, the quantity of the cir- 
culating notes of the Bank of England never reached the 
maximum, since 1844, which it was authorized to issue. And 
the crisis of 1857 proved, on the other hand, that this max- 
imum does not sufSce under certain circumstances. From 
ISTovember 13, to 30, 1857, a daily average of 488,830 pomids 
sterling circulated above this maximum (B. A. 1858, p. XI). 
The legal maximum was at that time 14,475,000 pounds 
sterling plus the amount of the metal reserve in the vaults of 
the bank. 

Concerning the outgoing and incoming tide of precious 
metals the following remarks are made: 

1) A distinction should be made between the back and 
forth movements of the metal within the districts which do 
not produce any gold and silver, and on the other hand, be- 
tween the flow of gold and silver from their sources of pro- 



664 Capitalist Production. 

duction to the different other countries and the distribution of 
this additional metal among these other countries. 

Before the gold mines of Kussia, California and Australia 
exerted their influence, the supply since the beginning of the 
nineteenth century sufficed only to replace the wornout coins, 
to satisfy the demand for articles of luxury, and to promote 
the exports of silver to Asia. 

However, the silver exports of Asia increased extraordina- 
rily since that time, owing to the Asiatic trade with America 
and Europe. The silver exported from Europe was largely 
replaced by the additional supply of gold. In the second 
place, a portion of the newly imported gold was absorbed by 
the internal money-circulation. It is estimated that up to 
1857 about 30 millions in gold were added to the internal 
circulation of England. ^^® Furthermore, the average volume 
of the metal reserves in all central banks of Europe and Amer- 
ica increased since 1844. The increase of the inland money 
circulation also carried with it the circumstance, that in the 
period of stagnation following iipon the panic the bank re- 
serves gTew more rapidly than before in consequence of the 
larger quantity of gold coins thrown out of inland circulation 
and held in a state of rest. Finally the consumption of pre- 
cious metals for articles of luxury increased since the dis- 
covery of new gold deposits in consequence of the growing 
wealth. 

2) Between the countries that do not produce any gold and 
silver, precious metals flow back and forth ; the same country 
continually imports some, and just as continually exports 

108 What effect this had on the money market, is shown by the following testi- 
mony of Newmarch: 1509. "Toward the close of 1853 considerable apprehension 
was felt by the public; in September the Bank of England raised its discount 
three times in succession ... in the first days of October ... a con- 
siderable degree of anxiety and alarm showed itself among the public. These 
apprehensions and this restlessness were largely alleviated before the end of No- 
vember, and were almost wholly removed by the arrival of five millions in precious 
metal from Australia. The same thing was repeated in the fall of 1854, when almost 
six- millions in precious metals arrived in October and November. And in the fall of 
1S55, a time of excitement and restlessness, the same thing was repeated on the ar- 
rival of about eight millions in precious metals dviring the months of September, Octo- 
ber and November. At the end of 1856 we find the same thing takes place. In 
short, I could very well appeal to the experience of nearly every member of this 
committee as to whether we have not become accustomed to see a natural and 
complete remedy for a financial stringency in the arrival of a gold ship." 



Precious Metals and Rates of Exchange, 665 

some. It is only tlae predominance of this movement in one 
direction or the other which decides whether there is in the 
last instance a drain or an addition, since the merely oscillat- 
ing and frequently parallel movements largely neutralise one 
another. But for this reason, so far as this "result is con- 
cerned, the continuity and the mainly parallel course of both 
movements is overlooked. It is always assumed that a plus 
in the imports or a plus in the exports of precious metals ap- 
pears only as an effect and concomitant of the proportion be- 
tween the imports and exjoorts of commodities, whereas they 
are at the same time an expression of the proportion between 
the exports and imports of precious metals themselves, inde- 
pendent of the trade of commodities. 

3) The predominance of the imports over the exports, and 
vice versa, is measured on the whole by the increase or de- 
crease of the metal reserve in the central banks. To what ex- 
tent this scale of measurement is more or less exact, depends, 
of course, primarily on the degree to which the banking Lusi- 
ness in general is centralised. Eor on this premise tiums the 
question, to what extent the precious metal hoarded in the 
so-called national banks represents the national metal reserve 
at all. But assuming this to be the case, the scale of measiire- 
ment is not exact, because an additional import may be ab- 
sorbed under certain circumstances by the inland circulation 
and the growing consumption of gold and silver in the mak- 
ing of articles of luxury ; furthermore, because without an ad- 
ditional import a withdrawal of gold coin for inland circula- 
tion may take place and thus the metal reserve may decrease, 
even without a simultaneous increase of the export. 

4) An export of metals assumes the aspect of a drain, 
when the movement continues for a long time, so that the 
decrease represents the tendency of the movement and de- 
presses the metal reserve of the bank considerably below its 
average level, down to about its average minimum. This 
minimum is in so far more or less arbitrarily fixed, as it is 
differently determined in every individual case by the legisla- 
tion concerning the backing of notes, etc., by cash. Concern- 
ing the quantitative limits, which such a drain may reach 



666 Capitalist Production. 

in England, ISTewmarch testified before the Committee on 
B. A., 185Y, Evidence 'No. 1494 : " To judge bj experience, 
it is very unlikely that tlie drain of metal as a result of 
some fluctuation in the foreign business will exceed three or 
four million pounds sterling." — In 1847 the lowest level of 
the gold reserve of the Bank of England, on October 23, 
showed a minus of 5,198,156 pounds sterling as compared to 
that of December 26, 1846, and a minus of 6,453,748 pounds 
sterling as compared to the highest level on August 29, 1846. 
5) The functions of the metal reserve of^ the so-called 
national banks, which functions, however, do not by them- 
selves regulate the magnitude of this reserve, for it may grow 
through a mere paralisation of internal commerce, are three- 
fold: 1) It is a reserve fund for international payments, 
in one word a reserve fund of world money; 2) it is a 
reserve fund for the alternately expanding and contracting 
metal circulation of the inland markets; 3) it is a reserve 
fund for the payment of deposits and for the convertibility 
of notes, and this part of its function is connected with the 
function of the bank and has nothing to do with the functions 
of money as mere money. It may, therefore, also be touched 
by conditions, which affect every one of these three functions. 
As an international fund it, may be touched by the balance 
of payment, no matter by what causes this may be determined, 
and whatever may be its proportion to the balance of trade. 
As a reserve fund for the metal circulation of the inland 
market it may be touched by its expansion or contraction. 
The third function, that of a fund guaranteeing the converti- 
bility of the notes, while it does not determine the independent 
movements of the metal reserve, has a double effect. If notes 
are issued, which replace the metallic money in the inland 
circulation (which may also consist of silver in countries 
where silver is a measure of value), then the second function 
of the reserve fund is eliminated. And a portion of the 
precious metal, which performed its function, will perma- 
nently wander into foreign countries. In this case no with- 
drawal of metallic money for inland circulation takes place, 
and this does away at the same time with the temporary 



Precious Metals and Rates of Exchange. 667 

augmentation of the metal reserve bj the immobilised part 
of the circulating metal coin. Furthermore^ if a minimum 
of a metal reserve must be kept under all circumstances, it 
affects in a peculiar way the results of a drain or an ad- 
dition of gold; it affects that part of the reserve, which the 
bank is compelled to maintain under all circumstances, or 
that part, which it seeks to get rid of as useless at a certain 
time. If the circulation were purely metallic and the bank- 
ing system concentrated, the bank would have to consider 
its metal reserve likewise as a security for the payment of 
its deposits, and a drain of metal might then cause such a 
panic as was witnessed in Hamburg in 1857. 

6) With the exception of 1837, the real crisis broke out 
always after the rates of exchange had been altered, that is, 
as soon as the import of precious metal had increased over 
the export. 

In 1825 the real crash came after the drain of gold had 
ceased. In 1839 a drain of gold took place without bringing 
a crash. In 1847 the drain of gold ceased in April and the 
crash came in October. In 1857 the drain of gold to foreign 
countries had ceased since the beginning of November, and 
the crash did not come until later in ISTovember. 

This stands out particularly in the crisis of 1847, when 
the drain of gold ceased already in April, after causing a 
slight preliminary crisis, and the real business crisis did not 
come until October. 

The following evidence was given before the Secret Com- 
mittee of the House of Lords on Commercial Distress, 1848. 
This evidence was not printed until 1857 (also quoted as C. 
D. 1848-57). 

Evidence of Tooke. In April, 1847, a stringency arose, 
which strictly speaking equalled a panic, but was of relatively 
short duration and not accompanied by any commercial 
failures of importance. In October the stringency was far 
more intensive than at any time during April, an almost 
imheard of number of commercial failures taking place 
(2196). — In April the rates of exchange, particularly with 
America, compelled us to export a considerable amount of 



668 Capitalist Production. 

gold in payment for unusually large imports; only by an ex- 
treme effort did the bank stop the drain and drive the rates 
higher (2197). — In October the rates of exchange favored 
England (2198). — The change in the rates of exchange had 
begun in the third week of April (3000). — They fluctuated 
in July and August; since the beginning of August they 
alvs^ays favored England (3001). — The drain of gold in 
August arose from a demand for internal circulation. 

J. Morris, Governor of the Bank of England: Although 
the rate of exchange favored England since August, 1847, 
and an import of gold had taken place in consequence, the 
metal reserve of the bank decreased nevertheless. '" 2,200,000 
pounds sterling went out to the country, as a result of inland 
demand." (137) — 'This is explained on the one hand by 
an increased employment of laborers in railroad construction, 
en the other by a " desire of the bankers to possess their own 
gold reserve in times of crisis." (1-17.) 

Palmer, Ex-Governor and since 1811 a Director of the Bank 
of England : 684. " During the entire period from the 
middle of April, 1847 to the day of the suspension of the 
Bank Act of 1844 the rates of exchange were in favor of 
England." 

The drain of metal, which created in April, 1847, an 
independent money panic, was here, as always, but a pre- 
cursor of the crisis and had already been turned back, when 
the crisis broke out. In 1839 a heavy drain of metal took 
place, for corn, etc., while the business was strongly depressed, 
but without any crisis and money panic. 

7) As soon as the universal crises have spent themselves, 
the gold and silver, aside from an addition of new precious 
metals from the sources of production, distributes itself once 
more in such proportions as it showed in the form of the in- 
dividual reserve of the various countries in a condition of 
equilibrium. Other circumstances remaining the same, its 
relative magnitude in every country will be determined by 
the role of that country in the world market. It flows away 
from the country which had more than its normal portion 
into some other country. These movements of outgoing and 



Precious Metals and Rates of Exchange. 669 

incoming metal restore merely its original distribution among 
the various national reserves. This redistribution, however, 
is brought about by the effects of different circumstances, 
which will be mentioned in our treatment of rates of ex- 
change. As soon as the normal distribution is once more a 
fact, a stage of growth follows first, and then again a drain. 
[This last sentence applies, of course, only to England, as 
the center of the world's money market. — F.E,] 

8) The drains of metal are generally a symptom of a 
change in the condition of foreign commerce, and this change 
in its turn is a premonition tliat conditions are approaching 
a crisis. ^^''^ 

9) The balance of payment may favor Asia against 
Europe and America. ^^^ 

An import of precious metals takes place to a point of pre- 
dominance in two phases. On the one hand it takes place in 
the first phase of a low rate of interest, which follows upon 
a crisis and expresses a restriction of production; and then 
in the second phase, in which the rate of interest rises, 
without, however, attaining its medium level. This is the 
phase, in which returns come easy, commercial profit is large, 
and therefore the demand for loan capital does not grow in 
proportion to the expansion of production. In both phases, 
in which loan capital is relatively abundant, the superfluous 
addition of capital existing in the form of gold and silver, 
a form in which it can primarily serve only as loan capital, 
must seriously affect the rate of interest and with it the tone 
of the whole business. 

On the other hand, a drain, a continued and heavy outpour 

'^'" According to Newmarch, a drain of gold to foreign countries may arise from 
three causes: 1) from purely commercial conditions, that is, if the imports have 
exceeded the exports, as was the case during the time from 1836 to 1844, and 
again in 1847, principally a heavy import of corn; 2) from a desire to secure the 
means for the investment of English capital in foreign countries, as in 1857 for 
railroads in India; and 3) from a necessity of making definite expenditures in 
foreign countries, as in 1853 and 1854 for purposes of war in the Orient. 

i°s 1918. Newmarch. " If you take India and China together, if you take into 
account the transactions between India and Australia, and the still more important 
ones between China and the United States, and in these instances the business is 
a three-cornered one and the equilibration takes place through our intervention 
. . . then it is correct that the balance of trade was not only against England, 
but also against France and the United States." — (B. A., 1857.) 



6/0 Capitalist Production. 

cf precious metals, cnkes place as soon as the returns are no 
longer easy, the markets overstocked, and the seeming pros- 
perity held up only by credit; in other words, as soon as 
a very much increased demand for loan capital exists and 
the rate of interest has, for this reason, reached at least its 
medium level. Under these circumstances, which are re- 
flected by the drain of precious metals, the effect of the 
continued withdrawal of capital in a form, in which it is 
directly loanable money-capital, is considerably intensified. 
This must have a direct influence on the rate of interest. But 
instead of restricting the credit business, the rise of the rate 
of interest extends it and leads to an overstraining of all its 
resources. This period, therefore, precedes the crash. 

N"ewmarch is asked, B. A. 1857, E"o. 1520: " The amount 
of the circulating bills of exchange, then, rises with the rate 
of interest?" — "It seems so." — 1522. "In quiet, 
ordinary times the ledger is the actual instrument of ex- 
change; but when difficulties arise, for instance, if the dis- 
count rate of the Bank is raised under circumstances 
such as I have mentioned . . . then the transactions 
resolve themselves quite of their own account into the draw- 
ing of bills; these bills are not only better suited to serve 
as a legal evidence of the making of some business transaction, 
but they are also better adapted to the purpose of making 
other purchases, and they are above all useful as a means 
of credit for taking up capital." — This is further intensified 
by the fact that as soon as signs of threatening conditions in- 
duce the bank to raise its rate of discount, which implies the 
possibility that the bank may at the same time cut do^^ni the 
running time of the bills to be discounted by it, the general 
apprehension is spread, that this will grow worse. Every 
one, and first of all the credit swindler, will therefore strive 
to discount the future and have as many means of credit as 
possible at his command when the critical time comes. The 
above-mentioned reasons, then, amount in fact to this, that 
it is not the mere quantity of the imported or exported pre- 
cious metals which exerts its influence in this capacity but 



Precious Metals and Rates of Exchange. 6yi 

that this quantity works its effect, first, by the specific 
character of precious metals of being capital in the form of 
money, and secondly, that it works like a feather, which, 
added to the weight on the scales, suffice to incline the occil- 
lating balance definitely to one side, that is, it works this ef- 
fect, because it arises under conditions, when a little excess 
decides in favor of one side or the other. Without these 
reasons it would be quite inexplicable, why a drain of gold 
amounting to about five or eight million pounds sterling, and 
this is the limit according to present experience, should be 
able to exert any considerable influence. This small minus 
or plus of capital, which seems insignificant even compared 
to the YO million pounds in gold which circulate on an average 
in England, is a vanishing magnitude in a production of such 
volume as the English, -^^^ 

But it is just the development of the credit and banking 
business, which tends on the one hand to press all money- 
capital into the service of production (or what amounts to 
the same, to convert all money incomes into capital), and 
which on the other hand reduces the metal reserve to a 
minimum in a certain phase of the cycle, so that it can no 
longer perform the functions for which it is intended. It 
is the developed credit and banking system, which creates this 
oversensitiveness of the whole organism of the reserve below or 
above its average level is a relatively insignificant matter. 
On the other hand, even a very considerable drain of gold 
is relatively ineffective, unless it arises in the critical period 
of the industrial cycle. 

In this explanation we have not considered the cases, in 
which a drain of gold takes place as a result of crop failures, 
etc. In this case the great and sudden disturbance of the 
equilibrium of production, whose expression this drain is, 

"' See, for instance, the ridiculous answer of Weguelin, who says that five 
millions of drained gold is so much capital less, and who attempts to explain in this 
way certain phenomena, which do not appear when the actual industrial capital 
is infinitely more raised or depressed in price, expanded or contracted. On the 
other hand, it is just as ridiculous to attempt to explain these phenomena directly 
as symptoms of an expansion or contraction of the mass of real capital (that is, 
the material elements of capital). 



C'/2 Capitalist Production. 

requires no further explanation of its effects. These effects 
are so much greater, the more such a disturbance begins in 
a period, in which production works under high pressure. 

We have also left out of consideration the function of the 
metal reserve as a security for the convertibility of the bank 
notes and as the cardinal point of the credit system. The 
central bank is the pivot of the credit system. And the metal 
reserve in its turn is the pivot of the bank.-^^^ 

The transition from the credit system to the monetary 
system is necessary, as I have already shown in Volume I, 
chapter III, under the head of "Means of Payment." That 
the greatest sacrifices of real wealth are necessary, in order to 
maintain the metallic basis in a critical moment, has been 
admitted by both Tooke and Loyd-Overstone. The controversy 
turns merely around a plus or minus, and around the more or 
less rational treatment of the inevitable.^^^ A certain quantity 
of metal, insignificant compared with the total production, is 
admitted to be the pivotal point of the system. Hence its 
beautiful theoretical dualism^ aside from the appalling dem- 
onstration of this character in its capacity as the pivotal point 
I of crises. So long as enlightened bourgeois economy treats 
I of " Capital " in its official capacity, it looks down upon gold 
I and silver with the greatest disdain, considering them as 
' the most immaterial and useless forms of wealth. But as 
soon as it treats of the banking system, everything is reversed, 
and gold and silver become capital pur excellence, for whose 
i preservation every other form of capital and labor is to be 
I sacrificed. But how are gold and silver distinguished from 
i other forms of wealth ? ISTot by the magnitude of their value, 
'. for this is determined by the quantity of labor materialised 

"" Newmarch, B. A., 1857, No. 1364: "The metal reserve in the Bank of Eng- 
land is in fact . . . the central reserve or the central metal hoard, on the basis 
of which the entire business of the country is carried on. It is so to say the 
cardinal point, around which the entire business of the country has to turn; all 
other banks in the country consider the Bank of England as the central treasury, 
or the reservoir, from which they have to draw their reserves of hard cash; and 
the effect of the foreign rates of exchange falls always precisely upon this treasury 
and this reservoir." 

Ill " Practically, therefore, both Tooke and Loyd would meet an excessive de- 
mand for gold by a premature limitation of credits by raising the rate of interest 
and reducing advances of capital. Only Loyd causes by his illusion inconvenient 
and even dangerous [legal] limitations and rules." (^Economist, 1847, p. 1417.) 



Precious Metals and Rates of Exchange. 673 



in them; but by the fact tliat they represent independent in- 
carnations, expressions of the social character of wealth. 
[The wealth of society exists only as the wealth of private in- 
dividuals, who are its owners. It shows its social capacity 
only in the fact that these individuals exchange the qualita- 
tively different use-values mutually for the satisfaction of 
their wants. Under the capitalist production they can do so 
only by means of money. Thus the wealth of the individual 
is realised as a social wealth only by means of money. In 
money, in this thing, the social nature of this wealth is incar- 
nated. — F. E.] This social existence assumes the aspect of 
a world beyond, of a thing, matter, commodity, by the side 
of and outside of the real elements of social wealth. So long 
as production is in a state of flux, this is forgotten. Credit, 
likewise, in its capacity as a social form of wealth, crowds 
money out and usurps its place. It is the faith in the social 
character of production, which gives to the money-form of 
products the aspect of something disappearing and ideal. 
But as soon as credit is shaken — ■ and this phase always ap- 
pears of necessity in the cycles of modern industiy — all the 
real wealth is' to be actually and suddenly transformed into 
money, into gold and silver, a crazy demand, which, however, 
necessarily grows out of the system itself. And all the gold 
and silver, which is supposed to satisfy these enormous de- 
mands, amounts to a few millions in the cellars of the 
Bank.112 

In the effects of the gold drains, then, the fact that pro- 
duction as a social process is not subject to social control 
is strikingly emphasized by the existence of the social form 
of wealth outside out of it as a separate thing. The capi- 
talist system of production, it is true, shares this with former 
systems of production, so far as they rest on the trade with 
commodities and private exchange. But only in it does this 
become apparent in the most striking and gTOtesque form of 

112 " Yoy quite agree that there is no other way to modify the demand for gold 
than by raising the rate of interest?" — Chapman, associate member of the great 
bill brokers' firm of Overend Gurney & Co.: "That is my opinion. If our gold 
falls to a certain point, the best we can do is to ring the alarm bell at once and 
to say: We are on the decline, and whoever sends gold abroad, must do so at hij 
own peril." — B. A. 1857, Evidence No. 5057. 

2Q 



/ 



y 



674 Capitalist Production. 

the most absurd contradiction and nonsense, because, in the 
first place, production for the direct use of the producers is 
most completely abolished under the capitalist system, so that 
wealth exists only as a social process expressed by the inter- 
relations of production and circulation; and in the second 
place, because capitalist production forever strives to over- 
come this metallic barrier, the material and phantastic bar- 
rier of wealth and its movements, in proportion as the credit 
system develops, but forever breaks its head on this same 
barrier. 

In the crisis the demand is made, that all bills of exchange, 
securities, and commodities shall be simultaneously convertible 
into bank money, and this whole bank money consists of 
gold. 



II. The Rate of Exchange. 

[The barometer for tlie international movement of the 
money metals is the rate of exchange. If England has more 
payments to make to Germany than Germany to England, 
the price of marks, expressed in sterling, rises in London, 
and the price of sterling, expressed in marks, falls in Ham- 
burg and Berlin. If this overbalance of monetary obliga- 
tions of England toward Germany is not equalised, for in- 
stance, by overpurchases of Germany in England, the ster- 
ling price for marks on bills of exchange on Germany 
must rise to a point, where it will pay to send metal (gold 
coin or bullion) from England to Germany in payment of 
obligations, instead of sending bills of exchange. This is the 
typical course of things. 

If this export of precious metals assumes a larger scope 
and lasts longer, then the English bank reserve is touched, 
and the English money market, with the bank of England 
at the head, must take precautionary measures. These con- 
sist mainly, as we have already seen, in the raising of the 
rate of interest. When the drain of gold is considerable, 
the money market is always difficult, that is, the demand for 



Precious Metals and Rates of Exchange. 675 

loan capital in the form of money exceeds the supply by far, 
and the raising of the rate of interest follows quite naturally 
from this ; the rate of discount fixed by the Bank of England 
corresponds to this condition and asserts itself on the market. 
However, there are cases, when the drain of metal is due 
to other than the ordinary combinations of business (for 
instance, to loans of foreign states, investment of capital in 
foreign countries, etc.), when the London money market in 
that respect does not justify such an effective raise of the 
rate of interest; in that case the Bank of England must first 
make money " scarce " by heavy loans in the " open market " 
and thus create artificially a condition, which justifies a raise 
of the rate of interest, or renders it necessary; a maneuver, 
which becomes from year to year more difficult for it. — 
F. E.] 

How this raising of the rate of interest affects the rates 
of exchange, is shown by the following testimony before the 
Committe of the Lower House concerning bank legislation in 
1857 (quoted as B. A., or B. C, 1857.) 

John Stuart Mill: 2176. "When the business has become 
difiicult ... a considerable fall in the price of securi- 
ties takes place . . . foreigners order the buying of rail- 
road shares here in England, or English o^vners of foreign 
railroad shares sell them to foreign countries ... to 
that extent the transfer of gold is avoided." — 2182. " A 
large and rich class of bankers and dealers in securities, by 
whom the equalisation of the rate of interest and the equalisa- 
tion of the commercial barometric pressure between the dif- 
ferent countries is generally accomplished ... is al- 
ways on the lookout for the purchase of securities, which 
promise a rise in price ... the proper place to buy 
them will be the country which sends gold abroad." — 2183. 
" These investments of .capital took place to a large extent 
in 1847, enough to reduce the drain of gold." 

J. G. Hubbard, Ex-Giovernor, and since 1838 a Director of 
the Bank of England : 2545. " There are a large number of 
European securities . . . which have a European circu- 
lation in all the various money markets, and these papers, as 



d'j^ Capitalist Production. 

soon as they fall by one or two per cent, in one market, are at 
once brought up in order to be transferred to markets, where 
their value has still maintained itself." — 2565. "Are not 
foreign countries considerably in debt to merchants in Eng- 
land ?"—... " Very considerably."— 2566. " The col- 
lection of these debts might, therefore, suffice by itself to ex- 
plain a very large accumulation of capital in England ? " — 
" In the year 184Y our position was finally restored by our 
drawing a line through so and so many millions, which Amer- 
ica and Russia formerly owed to England." [England owed 
these same countries at the same time " so and so many mil- 
lions " for corn and did not forget to " draw a line " also 
through the greater portion of these by the bankruptcy of 
the English debtors. See the report on Bank Acts, 1857, in 
chapter XXX of this work.] — 2572. " In 1847 the rate of 
exchange between England and Petersburg stood very high. 
When the government letter was issued, which authorized 
the Bank of England to issue bank notes without adhering to 
the legally prescribed limit of 14 millions [beyond the gold 
reserve], the condition was that the discount should be kept 
at 8%. At that moment, and at that rate of discount, it was 
a profitable business to have gold shipped from Petersburg 
to London and to lend it out after its arrival at 8% until the 
three months' bills of exchange should become due, which had 
been drawn against the sold gold." — 2573. ^' In all operations 
with gold many points must be taken into consideration ; it 
depends on the rate of exchange and on the rate of interest, 
at which money may be invested until the bills drawn against 
it become due." 

III. Rate of Exchange ivith Asia. 

The following points are important, partly because they 
show that England must take refuge to other countries, when 
its rate of exchange with Asia is unfavorable. These are 
countries, whose imports from Asia are paid by way of Eng- 
land. On the other part they are important, because Mr. 
Wilson makes once more the silly attempt here, to identify 
the effect of an export of precious metal on the rates of ex- 



Precious Metals and Rates of Exchange. 677 

change with the effect of an export of capital in general upon 
these rates; the export being in either case not for the pur- 
pose of paying or buying, but of investing capital. In the 
first place it goes without saying, that whether so and so many 
millions of pounds sterling are sent to India in precious 
metals or railroad rails^ in order to be invested in railroads 
there, these are merely two different forms of transferring 
the same amount of capital to another country. And this is 
a form of transfer^ which does not enter into accounts of 
the ordinary mercantile businesses, and for which the ex- 
porting country expects no other returns than later on the 
annual revenue from the income of these railroads. If this 
export is made in the form of precious metal, it will exert a 
direct influence upon the money market and with it upon the 
rate of interest of the country exporting this precious metal, 
at least under the previously outlined conditions, if not neces- 
sarily under all circumstances, since precious metal is directly 
loanable money-capital and the basis of the entire money- 
system. This export also affects directly the rate of ex- 
change. For precious metal is exported only for the reason 
and to the extent that the bills of exchange, say, on India, 
which are offered in the London money market, do not suffice 
for the making of these extra payments. In other words, 
there is a demand for Indian bills of exchange which ex- 
ceeds their supply, and so the rates turn for a time against 
England, not because it is in debt to India, but because it 
has to send extraordinary sums to India. In the long run 
such a shipment of precious metal to India must have the 
effect of increasing the Indian demand for British goods, be- 
cause it indirectly increases the consuming power of India 
for European goods. But if the capital is shipped in the 
shape of rails, etc., it cannot have any influence on the rates 
of exchange, since India has no return payment to make for 
it. For the same reason this need not have any influence on 
the money market. Wilson seeks to establish the fact of 
such an influence by declaring that such an extra expendi- 
ture will bring about an extra demand for money accommoda- 
tion and will thus influence the rate of interest. This may 



678 Capitalist Production. 

be the case ; but to maintain that it must take place under all 
circumstances is totally wrong. No matter whether the rails 
are shipped and laid on English or Indian soil, they represent 
nothing else but a definite expansion of English production in 
a definite sphere. To contend that an expansion of produc- 
tion, even to a large volume, cannot take place without driv- 
ing the rate of interest higher, is absurd. The money ac- 
commodation may grow, that is, the amount of business trans- 
acted by operations of credit ; but these operations may in- 
crease also while the rate of interest remains unchanged. 
This was actually the case during the railroad mania in Eng- 
land during the forties. The rate of interest did not rise. 
And it is evident, that, so far as actual capital, in this case 
commodities, are concerned, the effect on the money market 
will be just the same, whether these commodities are intended 
for foreign countries or for inland consumption. A difference 
could be discovered only in the case that the investment of cap- 
ital on the part of England in foreign countries would have 
a restraining influence upon its commercial exports, that is, 
exports for which payment must be made in return, or to the 
extent that these investments of capital are general symptoms 
indicating the overstraining of credit and the beginning of 
swindling operations. 

In the following Wilson asks questions and l^ewmarch an- 
swers them. 

1Y86. " You said before, with reference to the silver de- 
mand for Eastern Asia, that in your opinion the rates of ex- 
change with India are in favor of England, in spite of the 
considerable wealth of metal continually sent to Eastern Asia ; 
have you any reasons for this ? " — ■ " To be sure. ... I 
find that the actual value of the exports of the United King- 
dom to India amounted to 7,420,000 pounds sterling in 1851 ; 
to this must be added the amount of the bills of exchange of 
the India House, that is, the funds which the East Indian 
Company draws from India for the payment of its own ex- 
penses. These drafts amounted in that year to 3,200,000 
pounds sterling ; so that the total exports of the United King- 
dom to India amounted to 10,620,000 pounds sterling. In 



Precious Metals and Rates of Exchange. 679 

1855 the actual value of the exports of commodities had risen 
to 10,350,000 pounds sterling; the drafts of the India House 
were 3,700,000 pounds sterling; the total exports therefore 
14,050,000 pounds sterling. For 1851, I believe, we have no 
means of ascertaining the actual value of the imports of com- 
modities from India to England; but we have for 1854 and 
1855. In 1855 the entire actual value of these imports of 
commodities from India to England was 12,670,000 pounds 
sterling and this sum, compared to the 14,050,000 pounds ster- 
ling, leaves a balance in favor of England, in the direct com- 
merce between the two countries, amounting to 1,380,000 
pounds sterling." 

Thereupon Wilson remarks that the rates of exchange are 
also touched by the indirect commerce. Eor instance, the ex- 
ports from India to Australia and ISTorth America are covered 
by drafts on London, and therefore affect the rate of exchange 
quite in the same way as though the commodities had gone 
directly from India to England. Furthermore, when India 
and China are taken together, the balance is against England, 
since China has continually heavy payments to make to India 
for opium, and England has to make payment to China, and 
the amounts go by this circuitous route to India. (1787, 
1788.) 

1789. Wilson asks now, whether the effect on the rates of 
exchange will not be the same, no matter whether the capital 
goes out in the form of iron rails or locomotives, or in the 
form of metal coin, l^ewmarch gives the correct answer: 
The 12 million pounds sterling, which have been sent during 
the last years to India for railroad construction served to buy 
an annual income, which India has to pay at regular terms 
to England. So far as any immediate effect on the precious 
metal market is concerned, the investment of 12 million 
pounds sterling can exert any influence only to the extent that 
metal had to be sent out for an actual investment in money. 

1797. WegTielin asks : " If no returns are made for these 
rails, how can it be said that they affect the rate of exchange ? " 
— "I do not believe that that portion of the expenditure, 
which is sent abroad in the form of commodities, affects the 



68o Capitalist Production. 

stand of the rates of exchange . . . the stand of the rates 
between two countries is, one may say exclusively, affected by 
the quantity of the obligations or bills of exchange offered in 
opposition to them in another country; that is the rational 
theory of the rate of exchange. As for the shipment of those 
12 millions, they were in the first place subscribed here; now, 
if the business were such, that these entire 12 millions would 
be deposited in cash in Calcutta, Bombay and Madras 
this sudden demand would strongly affect the price 
of silver, just as would be the case if the East India Company 
were to announce tomorrow, that it would increase its drafts 
from 3 millions to 12 millions. But one-half of these 12 mil- 
lions is invested ... in the purchase of commodities in 
England . . . iron rails and lumber and other materials 
. . . it is an investment of English capital, in England 
itself, for a certain kind of commodities to be shipped to In- 
dia, and that ends the matter." — 1798. Weguelin: "But 
the production of these commodities of iron and wood required 
for the railroads produces a heavy consumption of foreign 
commodities, and this could affect the rate of interest, 
could it not ? " — " Assuredly." 

Wilson thinks now, that iron largely represents labor, and 
that the wages paid for this labor largely represent imported 
goods (1Y99), and then he asks further: 

1801. "But speaking quite generally: If the commodi- 
ties, which have been produced by means of the consumption 
of these imported commodities, are sent out in such a way, that 
we do not receive any returns for them, either in products or 
otherwise, would not that have the effect of making the rates 
of exchange unfavorable for us ? " — " This principle is ex- 
actly what happened in England during the time of the great 
railway enterprises [1845]. For three or four years in suc- 
cession you invested 30 million pounds sterling in railroads 
and almost the whole in wages. You have maintained during 
three years in the construction of railroads, locomotives, cars, 
stations, a greater number of people than in all factory dis- 
tricts together. These people . . . expended their wages 
in the purchase of tea, sugar, liquor and other foreign com- 



Precious Metals and Rates of Exchange. 68 1 

modities; these commodities must be imported; but it is cer- 
tain that during the time that this great investment was being 
made, the rates of exchange between England and other coun- 
tries were not materially disturbed. No drain of precious 
metal took place, on the contrary, rather an addition." 

1802. Wilson insists that with a settled balance of trade 
and par rates between England and India the extra shipment 
of iron and locomotives " must affect the rate of exchange." 
]^ewmarch cannot see it that way, so long as the rails are sent 
out as an investment of capital and India has no payment to 
make for them in one form or another ; he adds : "I agree 
with the principle that no country can in the long run have 
an unfavorable rate of exchange with all countries, with whom 
it deals; an unfavorable rate of exchange with one country 
necessarily produces a favorable one with another." — ■ Wilson 
retorts with this triviality: 1803. " But would not a trans- 
fer of capital be the same, whether the capital were sent in 
this form or that ? " — ■ " So far as an indebtedness is con- 
cerned, yes." — 1804. " Then, whether you send out precious 
metal or commodities, the effect of railroad construction in 
India on the market of capital here would be the same and 
would increase the value of capital just as though the whole 
had been sent out in precious metal ? " 

If the prices of iron did not rise, it was certainly a proof 
that the " value " of the " capital " contained in the rails had 
not been increased. What is wanted is the value of money- 
capital, of the rate of interest. Wilson would like to identify 
money-capital with capital in general. The simple fact is, 
primarily, that 12 millions for Indian railroads are subscribed 
in England. This is a matter which has nothing directly to 
do with the rates of exchange, and the destination of the 12 
millions is also immaterial for the money market. If the 
money market is in good condition, it need not produce any 
effect at all on it, just as the English railroad subscriptions in 
1844 and 1845 left the money market untouched. If the 
money market is already somewhat difficult, then the rate of 
interest might indeed be affected by it, but certainly only in 
an upward direction, and this would have a favorable effect 



682 Capitalist Production. 

for England on the rates of exchange according to Wilson's 
theory, that is, it would work against the tendency to export 
precious metal; if not to India, then to some other country. 
Mr. Wilson jumps from one thing to another. In question 
1802 the rates of exchange are supposed to be affected, in 
question 1804 the " value of capital," two very different things. 
The rate of interest may affect the rates of exchange, and the 
rates may affect the rate of interest, but the rate of interest 
may be stable while the rates of exchange fluctuate, and the 
rates of exchange may be stable while the rate of interest fluc- 
tuates. Wilson cannot understand, that the mere form, in 
which capital is shipped abroad, should make such a difference 
in the effect, that is, that the difference in the form of capital 
should have such an effect, not to mention its money form, 
which runs very much counter to the enlightened economy. 
Newmareh answers Wilson's question onesidedly inasmuch as 
he does not point out that he has jumped so suddenly and with- 
out reason from the rate of exchange to the rate of interest. 
Newmarch answers question 1804 uncertainly and doubtfully: 
" No do^^bt, if 12 millions are to be raised, it is immaterial, 
so far as the general rate of interest is concerned, whether 
these 12 millions are to be sent out in precious metals or in 
materials. I believe, however " [a fine transition, this how- 
ever, when he intends to say the exact opposite] " that this 
is not quite immaterial " [it is immaterial, but, however, it 
is not material] " because in the one case the six million 
pounds sterling would return immediately; in the other case 
they would not return so quickly. Therefore it would make 
some " [what definiteness !] " difference, whether the six mil- 
lions were invested here at home or sent entirely abroad." 
What does he mean by saying that the six millions would re- 
turn immediately ? To the extent that the six million pounds 
sterling have been spent in England, they exist in rails, loco- 
motives, etc., which are shipped to India, whence they do not 
return, and their value returns very slowly through a sinking 
fund, whereas six millions in precious metals may return very 
quickly in their natural form. To the extent that six mil- 
lions have been spent in wages, they have been consumed ; but 



Precious Metals and Rates of Exchange. 683 

the money, in which they were paid, circulates in the country 
the same as ever or forms a reserve. The same is true of the 
profits of the producers of iron rails and of that portion of 
the six millions which makes good their constant capital. This 
ambiguous phrase of the return of values is used by Newmarch 
only in order to avoid saying directly: The money has re- 
mained in the country, and so far as it serves as loanable 
money-capital the difference for the money-market (aside from 
the possibility that the circulation might have swallowed more 
hard cash) is only this, that it is spent for the account of A 
instead of B. An investment of this kind, where the capital 
is transferred to other countries in commodities, not in pre- 
cious metals, cannot affect the rate of exchange, unless the 
production of these exported commodities requires an extra- 
import of other foreign commodities, and this, at any rate, 
does not affect the rate of exchange with the country in which 
the exported capital is invested. This production is not in- 
tended to settle for this extra import. The same takes place 
in every export on credit, no matter whether it be intended 
for investment as capital or for ordinary purposes of com- 
merce. Besides, such an extra import may also cause a re- 
action in the way of an extra demand for English goods, for 
instance, on the part of the colonies or of the United States. 



Before that N^ewmarch said that owing to the drafts of the 
East India Company the exports from England to India were 
larger than the imports. Sir Charles Wood cross-examines 
him on this score. This excess of the English exports to In-- 
dia over the imports from India is actually due to imports 
from India, for which England does not pay any equivalent. 
The drafts of the East India Company (now of the British 
government) resolve themselves into a tribute levied on India. 
For instance, in 1855 the imports from India to England 
amounted to 12,6Y0,000 pounds sterling; the English exports 
to India amounted to 10,350,000 pounds sterling; balance in 
India's favor 2,250,000 pounds sterling. " If the matter were 
exhausted with this, then these 2,250,000 pounds sterling 



684 Capitalist Production. 

would have to be remitted to India in some form. But then 
come the invitations from the India House. The India House 
announces that it is in a position to issue drafts on the differ- 
ent presidencies in India to the amount of 3,250,000 pounds 
sterling. [This amount v^as levied for the London expenses 
of the East India Company and for the dividends due to the 
stockholders.] And this liquidates not merely the balance of 
2,250,000 pounds sterling, which arose in a business way, 
but gives besides a surplus of one million." (1917.) 

1922. Wood: "Then the effect of these drafts of the 
India House is not to increase the exports to India, but to 
reduce them to that extent ? " [He means to say to reduce the 
necessity of covering the imports from India by exports to 
India to the same amount.] Mr. ITewmarch explains this by 
saying that the British export for these 3,700,000 pounds ster- 
ling a "good government" to India (1925). Wood, know- 
ing very well the kind of " good government " exported to In- 
dia by the British, having been Minister to India, replies cor- 
rectly and ironically: 1926. "Then the exports, which, as 
you say, are caused by the India House drafts, are exports of 
good government, and not of commodities." — Since England 
exports a good deal " in this way " in the shape of " good gov- 
ernment " and for investment of capital in foreign countries, 
things which are quite independent of the ordinary run of 
business, tributes which consist either in payment for " good 
government " or in revenues from capital invested in the col- . 
onies or elsewhere, tributes for which it does not have to pay 
any equivalent, it is evident, that the rates of exchange are 
not affected, when England simply consumes these tributes 
without making any exports in return for them. Hence it 
is also evident that the rates of exchange are not affected, 
when it reinvests these tributes, not in England, but produc- 
tively or unproductively in foreign, countries ; for instance, 
when it sends ammunition to the Crimea with them. More- 
over, to the extent that the imports from abroad pass into the 
revenue of England — • of course, they must first have been 
paid, either in the form of tributes for which no equivalent 
return is made, or by exchanging things for these tributes be- 



Precious Metals and Rates of Exchange. 685 

fore tliey have been paid, or by the ordinary course of com- 
merce — England can either consume them or reinvest them 
as capital. ]Sreither the one nor the other thing touches the 
rates of exchange, and this is what Wilson overlooks. Whether 
a domestic or a foreign product forms a part of the revenue — 
and this last case requires merely an exchange of domestic for 
foreign products — the consumption of this revenue, be it pro- 
ductive or unproductive, alters nothing in the rates of ex- 
change, even though it may alter the scale of jDroduction. The 
following remarks should be judged by the foregoing explana- 
tion: 

1934. Wood asks !N'ewmarch, how the shipment of war 
supplies to the Crimea would affect the rates of exchange with 
Turkey. ITewmarch replies : " I do not see, that the mere 
shipment of war supplies would necessarily affect the rates of 
exchange, but the 'shipment of precious metals would surely 
affect these rates." In this case he distinguishes capital in 
the form of money from capital in other forms. But now 
Wilson asks: 

1935. " If you promote an export on a large scale of some 
article for which no corresponding import takes place, you do 
not pay the foreign debts, which you have contracted by your 
imports, and for this reason you must affect the rates of ex- 
change by these transactions, since the foreign debts are not 
paid, because your export has no corresponding import. — ■ 
This is true of countries in general." [Mr. Wilson forgets, 
that there are very considerable imports into England, for 
which no coi'Vesponding exports have ever taken place, except 
in the form of " good government " or of formerly exported 
capital for investment ; at any rate imports which do not pass 
into the regular commercial movement. But these imports 
are again exchanged, for instance, for American products, and 
the fact that American goods are exported without any cor- 
responding imports does not alter the fact that the value of 
these imports may be consumed without any equivalent return 
abroad; they have been received without being balanced by 
any corresponding exports, and may also be used up without 
entering into the balance of trade. On the other hand, if 



686 Capitalist Production. 

these imports have already been paid by you, for instance, by 
credit given to foreign countries, then no debt is contracted 
through this, and the question has nothing to do with the in- 
ternational balance; it resolves itself into productive and un- 
productive expenditures, no matter whether the products so 
used are domestic or foreign.] 

This lecture of Wilson's amounts to saying that every ex- 
port without a corresponding import is at the same time ^n 
import without a corresponding export, because foreign, hence 
imported, commodities enter into the production of the ex- 
ported article. The assumption is that every export of this 
kind is based on some unpaid import, or creates it, resulting in 
a debt to a foreign country. This is wrong, even aside from 
the two following circumstances. 1) England receives im- 
parts free of charge, for which it pays no equivalent, such as 
a portion of its Indian imports. It may exchange these for 
American imports, and may export the latter without any im- 
ports to counterbalance them; but at any rate, so far as this 
value is concerned, it has only exported something that did 
not cost it anything. 2) England may have paid for imports, 
for instance American imports, which form additional cap- 
ital; if it consumes these unproductively, for instance, using 
them as war materials, this does not constitute any debt to- 
wards America and does not affect the rates of exchange with 
America. ISTewmarch contradicts himself in numbers 1934 
and 1935, and Wood calls his attention to this, in number 
1938 : " If no portion of the commodities employed in the 
manufacture of articles, which we export witltout receiving 
any returns [war materials], comes from the country into 
which these articles are sent, how does that touch the rate of 
exchange with that country? Suppose that commerce with 
Turkey is in the ordinary condition of equilibrium ; how is 
the rate of exchange between us and Turkey affected by the 
export of war materials to the Crimea ? " — Here ISTewmarch 
loses his equanimity ; he forgets that he has answered the same 
simple question correctly in ISTo. 1934, and says: "We have, 
it seems to me, exhausted the practical question, and we are 



Preciotts Metals and Rates of Exchange. 6S7 

now getting into a verj high region of metaphysical discus- 
sion." 



[Wilson has still another version of his claim, that the rate 
of exchange is affected by every transfer of capital from one 
country to another, no matter whether this takes place in the 
form of precious metals or of commodities. Wilson knows, 
of course, that the rate of exchange is affected by the rate of 
interest, particularly by the relation of the rates of interest 
current in any two countries whose rates of exchange are un- 
der discussion. If he can now demonstrate that any surplus 
of capital, and in the first place commodities of all kinds, in- 
cluding precious metals, contribute their share to influencing 
the rate of interest, then he makes a step nearer to his goal; 
a transfer of any considerable portion of this capital to some 
other country must then change the rate of interest in both 
countries, in opposite directions, and this must alter in a sec- 
ondary way the rate of exchange between both countries. — 
F. E.] 

He says, then, in the "Economist " 1847, page 4Y5, which 
he edited at that time: 

1) "It is evident, that such a surplus of capital, indicated 
by large supplies of all kinds, including precious metals, must 
lead necessarily, not only to lower prices of commodities in 
general, but to a lower rate of interest for the use of capital." 

2 ) "If we have a stock of commodities on hand, large 
enough to supply the country for the coming two years, then 
a command of these commodities for a given period may be 
had at a much lower rate than if it would last only for two 
months." 

3) All loans of money, in whatever form they may be 
made, are merely transfers of the command over commodities 
from one to another. If, therefore, commodities are super- 
abundant, then the money interest must be low, if they are 
scarce, it must be high." 

4) "If commodities come in more abundantly, the number 
of sellers compared to the number of buyers must increase. 



688 Capitalist Production. 

and in proportion as the quantity exceeds the needs of the di- 
rect consumers, an ever larger portion must be stored up for 
later use. Under these circumstances an owner of commodi- 
ties will sell at lower conditions on future payment, or on 
credit, than he would if he were sure that his whole stock 
would be sold within a few weeks." 

Our comment on sentence No. I, is that a strong addition 
to the precious metals may be made while production is simul- 
taneously contracted, which is always the case in the period 
after a crisis. In the subsequent phase precious metals may 
come in from countries that produce above all precious metals ; 
the imports of other commodities are generally balanced by 
the exports during this period. In these two phases the rate 
of interest is low and rises but slowly; we have already ex- 
plained the reason for this. This low rate of interest may be 
explained everywhere without any influence of any " Large 
supplies of any kind." And how is this influence to take 
place? The low price of cotton, for instance, renders pos- 
sible the high profits of the spinners, etc. Now why is the rate 
of interest low? Surely not, because the profit, which may 
be made on borrowed capital, is high. But simply and solely, 
because under existing conditions the demand for loan cap- 
ital does not grow in proportion to this profit ; in other words, 
because loan capital has a different movement than industrial 
capital. What the '^' Economist " wants to prove is exactly 
the reverse, namely that the movements of loan capital are 
identical with those of industrial capital. 

Comment on sentence No. 2). If we reduce tlie absurd as- 
sumption of a stock for two years ahead to a point where it 
begins to take on some meaning, it signifies that the markets 
are overstocked. This would cause a falling of prices. Less 
would have to be paid for a bale of cotton. This would by no 
means justify the conclusion, that the money which is to be 
used for the pa^onent of this cotton, is more easily borrowed. 
For this depends on the condition of the money market. If 
money can be borrowed more easily, it can be so only because 
the commercial credit is in such shape, that it has to make less 
use of bank credit than ordinarily. The commodities over- 



Precious Metals and Rates of Exchange. 689 

crowding the market are means of subsistence or means of 
production. The low price of both increases in this case the 
profit of the industrial capitalist. Why should these low 
prices depress the rate of interest, unless it be through the 
contrast (not the identity) between the abundance of indus- 
trial capital and the scarcity of the demand for loan capital ? 
Th-e circumstances are such, that the merchant and the in- 
dustrial capitalist can more easily give credit to one another ; 
owing to this facilitation of commercial credit, neither the in- 
dustrial nor the merchant need much bank credit; hence the 
rate of interest can be low. This low rate of interest has noth- 
ing to do with the increase of precious metals, although both 
of them may run parallel to each other and the same causes, 
which bring about the low prices of articles of import, may 
also produce a surplus of precious metals. If the import mar- 
ket were really overcrowded, it would prove a decrease of the 
demand for imported articles, and this would be inexplicable 
at low prices, unless it be attributed to a contraction of indus- 
trial production at home; but this, again, would be inex- 
plicable, so long as there is an overimportation at low prices. 
All these absurdities are brought forward for the purpose of 
proving that a fall of prices is identical with a fall of interest. 
Both things may, indeed, exist side by side. But if they do, 
it will be an expression of the opposite directions, in which 
the movement of industrial capital and of loan capital takes 
place. It will not be an expression of their identity. 

Comment on sentence IvTo. 3). Why money interest should 
be low, when commodities exist in abundance, is hard to un- 
derstand, even after the foregoing remarks. If commodities 
are cheap, then I need, say, only 1,000 pounds sterling instead 
of 2,000 pounds sterling for a definite quantity which I may 
want to buy. But perhaps I might invest 2,000 pounds ster- 
ling nevertheless, and thus buy twice the quantity which I 
could have bought formerly. In this way I expand my busi- 
ness by advancing the same capital, which I may have to bor- 
row. I buy 2,000 pounds sterling's worth of commodities, 
the same as before. My demand on the money market there- 
fore remains the same, even though my demand on the com- 

8R 



690 Capitalist Production. 

modity-market rises with the fall of the prices of commodities. 
But if this demand for commodities should decrease, that is, 
if production should not expand with the fall of the prices of 
commodities, a thing contrary to all laws of the " Economist/' 
then the demand for loanable money-capital would be decreas- 
ing, although the profit would be increasing. But this in- 
creasing profit would create a demand for loan capital. For 
the rest, the low stand of the prices of commodities may be 
due to three causes. First, to a lack of demand. In that 
case the rate of interest is low, because production is para- 
lyzed, not because commodities are cheap, since this cheapness 
is but an expression of that paralysis. In the second place, 
it may be due to a supply which is excessive compared to the 
demand. This may be the result of an overcrowding of mar- 
kets, etc., which may lead to a crisis, and may go hand in hand 
with a high rate of interest during a crisis ; or it may be the 
result of a fall in the value of commodities, so that the same 
demand may b© satisfied at lower prices. Why should the 
rate of interest fall in the last case ? Because the profits in- 
crease ? If this should be due to the fact that less money-cap- 
ital is required for the purpose of obtaining the same produc- 
tive or commodity-capital, it would merely prove that profit 
and interest stand in an inverse proportion to one another. 
Certainly this general statement of the " Economist " is wrong. 
Low money prices of commodities and a low rate of interest 
do not necessarily go together. Otherwise the rate of interest 
would be lowest in the poorest countries, in which the money 
prices of commodities are lowest, and highest in the richest 
countries, in which the money prices of products of agricul- 
ture are highest. In a general way the " Economist " admits : 
If the value of money falls, it exerts no influence on the rate 
of interest. 100 pounds sterling bring 105 pounds sterling 
the same as ever. If the 100 pounds sterling are worth less, 
so are the 105 pounds sterling or the 5 pounds interest. This 
relation is not affected by the appreciation or depreciation of 
the original sum. Considered as a value, a definite quantity 
of commodities is equal to a definite sum of money. If this 
value rises, it is equal to a larger sum of money ; the reverse 



Precious Metals and Rates of Exchange. 691 

takes place wiien it falls. If the value is 2,000, then 5% of 
it is 100; if it is 1,000, then 5% of it is 50. This does not 
alter anything in the rate of interest. The rational part of 
this matter is merely that a greater pecuniary accommodation 
is required, when it takes 2,000 pounds sterling to buy the 
same quantity of commodities, which may be bought for 1,000 
pounds sterling at some other time. But this shows at this 
point merely that profit and interest are inversely proportion- 
ate to one another. For profit rises with the cheapness of the 
elements of constant and variable capital, whereas interest 
falls. But the reverse may also take place, and does often 
take place. For instance, cotton may be cheap, because no 
demand exists for yarn and fabrics ; and cotton may be rela- 
tively dear, because a large profit in the cotton industry cre- 
ates a great demand for it. On the other hand the profits of 
the industrials may be high, just because the price of cotton 
is low. That list of Hubbard's proves that the rate of interest 
and the prices of commodities pass through mutually independ- 
ent movements, whereas the movements of the rate of interest 
adapt themselves closely to those of tlie metal reserve and 
the rates of exchange. 

Says the " Economist " : " If, therefore, commodities are 
superabundant, then the money interest must be low." It is 
just the reverse which takes place during crises ; the commodi- 
ties are superabundant, not convertible into money, and there- 
fore the rate of interest is high ; in another phase of the cycle 
the demand for commodities is large, hence returns are easy, 
while prices of conimodities are rising at the same time, and 
the rate of interest is low on account of the easy returns. " If 
they [the commodities] are scarce, it must be high." Once 
more the opposite is true in times of depression after a crisis. 
Commodities are scarce, absolutely speaking, not merely 
with reference to the demand; and the rate of interest is 
low. 

Comment on sentence ISTo. 4). It is pretty evident that an 
owner of commodities, provided he can sell them at all, will 
get rid of them at a lower price when the market is over- 
crowded than he will when there is a prospect of a rapid ex- 



692 Capitalist Production. 

haustion of the existing supply. But why the rate of interest 
should fall on that account is not so clear. 

If the market is overcrowded with imported commodities, 
the rate of interest may rise as a result of an increased de- 
mand for loan capital on the part of their owners, who may 
wish to escape the necessity of throwing their commodities on 
the market. On the other hand, the rate of interest may fall, 
because the fluidity of commercial credit may keep the demand 
for bank credit relatively low. 



^The "' Economist " mentions the rapid effect on the rates of 
exchange in 1847, as a consequence of the raising of the rate 
of interest and other circumstances exerting a pressure on the 
money market. But it should not be forgotten, that the gold 
continued to be drained off until the end of April, in spite of 
the turn in the rates of exchange ; a change did not take place 
in this until the beginning of May. 

On January 1, 1847, the metal reserve of the Bank was 15,- 
066,691 pounds sterling; the rate of interest 3|% ; rates of 
exchange for three months on Paris 25.75 ; on Hamburg 13.10 ; 
on Amsterdam 12.3_^. On March 5th the metal reserve had 
dwindled to 11,595,535 pounds sterling; the discount had 
risen to 4% ; the rate of exchange fell to 25.67^ for Paris; 
13.9^ for Hamburg; 12. 2| for Amsterdam. The drain of 
gold continued. See the following table : 





Precious Metal 


Money Market 


Highest Three Month! 


y Rates 


Date 1847 


Reserve of the 












Bank of England 




Paris 


Ham- 
burg 


Amster- 
dam 


March 20 


11,231,630 


Bk. Dc. 4% 


25.67>< 


13.9 J4 


13.254 


April 3 


10,246,630 


Bk. Dc. 5% 


25.80 


13.10 


12.354 


April 10 


9,867,053 


Money very scarce 25.90 


IS.IOJ^ 


12.454 


April 17 


9,329,941 


Bk.Dc. 5.5% 


26.0254 


13.10?4 


12.554 


April 24 


9,213,890 


Pressure 


26.05 


13.13 


12.6 


May 1 


9,337,716 


Increasing 
Pressure 


26.15 


13.12J4 


12.654 


May 8 


9,588,759 


Highest 
Pressure 


26.2754 


13.1554 


12. 7M 



In 1847 the total exports of precious metals from England 
amounted to 8,602,597 pounds sterling. 



Precious Metals and Rates of Exchange. 693 

Of this amount the United States received 3,226,411 pounds sterling 

France : 2,479,892 " " 

Hansa Towns 958,781 " " 

Holland 247,743 

In spite of tlie change in the rates at the end of March the 
drain of gold continued for another full month, probably to 
the United States. 

"We see here" [says the "'Economist " 18i7, p. 084], 
" how rapidly and strikingly the raising of the rate of interest 
exerted its effect, together with the subsequent money panic, 
in correcting an unfavorable rate of exchange and turning the 
tide of gold, so that it flowed once more into England. This 
effect was produced quite independently of the balance of 
payment. A higher rate of interest produced a lower price 
of securities, of English as well as foreign ones, and caused 
large purchases of them for foreign accounts. This increased 
the sum of the bills of exchange drawn by way of England, 
while on the other hand, at the high rate of interest, the dijEH- 
culty of obtaining money was so great, that the demand for 
these bills of exchange fell, while their sum rose. It was for 
the same reason that orders for foreign goods were annulled 
and the investment of English capital in foreign securities 
realised and the money taken to England for investment. Eor 
instance, we read in the "' Rio de Janeiro Prices Current " of 
May 10 : " The rate of exchange " [on England] " has ex- 
perienced a new setback, caused mainly by a pressure on the 
market for remittances for the realisations on considerable 
purchases of [Brazilian] government bonds for English ac- 
count." English capital, which had been invested in foreign 
countries in various securities, when the rate of interest was 
very low here, was thus taken back when the rate of interest 
had risen. 

IV. England's Balance of Trade. 

India alone has to pay 5 millions in tribute for " good gov- 
ernment," interest and dividends of British capital, etc., not 
counting the sums sent home annually by officials as savings of 
their salaries, or by English merchants as a part of their profit 



694 Capitalist Production. 

in order to be invested in England. Every British colonv 
has to make large remittances continually for the same reason. 
Most of the banks in Australia, West India, Canada, have 
been founded with English capital, and the dividends are pay- 
able in England. In the same way England owns many for- 
eign securities, European, Korth and South American, on 
which it draws interest. In addition to this it is interested 
in foreign railroads, canals, mines, etc., with the correspond- 
ing dividends. Eemittance on all these items is made almost 
exclusively in products, in excess of the amount of the Eng- 
lish exports. What goes to foreign countries from England 
to owners of English securities and to be consumed by Eng- 
lishmen abroad, is a vanishing quantity in comparison. 

The question, so far as it concerns the balance of trade and 
the rates of exchange, is " at every given moment a question 
of time. As a rule . . . England gives large credits on 
its exports, while its imports are paid in cash. In certain 
moments this difference of habit has considerable influence on 
the rates of exchange. At a time when our exports increase 
very considerably, as in 1850, there must take place a contin- 
ual expansion in the investment of .British capital . . . 
in this way remittances of 1850 may be made against goods 
exported in 1849. But if the exports of 1850 exceed those of 
1849 by more than 9 millions, the practical effect must be 
that more money is sent abroad, to this amount, than returned 
in the same year. And in this way an effect is produced on the 
rates of exchange and the rate of interest. But as soon as 
business is depressed by a crisis, and our exports are greatly 
reduced, the remittances due for large exports of former years 
considerably exceed the value of our imports; consequently 
the rates turn in our favor, capital rapidly accumulates in the 
home country, and the rate of interest falls." (Economist^ 
January 11, 1851.) 

The foreign rates of exchange may be altered: 
1) In consequence of a momentary balance of payment, no 
matter to what cause this may be due, whether it be a purely 
mercantile one, or the investment of capital abroad, or gov- 



Precious Metals and Rates of Exchange. 695 

eminent expenditures, wars, etc., so far as cash payments are 
made to foreign countries. 

2) In consequence of a depreciation of money in a certain 
country, whether it be metal or paper money. This is purely 
nominal. If one pound sterling should represent only half as 
much money as formerly, it would naturally be counted as 
12.5 francs instead of 25 francs. 

3) When it is a question of the rate of exchange between 
countries, one of which uses silver, the other gold as " money," 
the rate of exchange depends upon the relative fluctuations of 
value of these two metals, since these fluctuations necessarily 
alter the parity between tliem. An illustration of this were 
the rates of exchange in 1850; they were against England, al- 
though its export rose enormously. But nevertheless no drain 
of gold took place. This was the result of a momentary rise 
in the value of silver as against that of gold. (See Economist j 
November 30, 1857.) 

The parity of the rate of exchange is for one pound sterling : 
on Paris 25.20 francs; Hamburg 13 marks banko 10.5 shill- 
ings;* Amsterdam 11 florins 97 centimes. In proportion as 
the rate of exchange on Paris exceeds 25.20 francs, it becomes 
more favorable to the English debtor of France, or the buyer 
of French commodities. In either case he needs less pounds 
sterling in order to accomplish his purpose. — In more remote 
countries, where precious metals are not easily obtained, when 
bills of exchange are scarce and insufficient for the remittances 
to be made to England, the natural effect is a raising of the 
prices of such products as are generally shipped to England, 
a greater demand arising for them, in order to send them to 
England in place of bills of exchange; this is often the case 
in India. 

An unfavorable rate of exchange, or even a drain of gold, 
may take place, when there is a great abundance of gold in 
England, a low rate of interest, and a high price of securities. 

In the course of 1848 England received large quantities of 
silver from India, since good bills of exchange were rare and 

• Old style German money, now discarded. — Translator. 



696 Capitalist Production. 

mediocre ones were not easily accepted, in consequence of 
the crisis of 18-iY and the great lack of credit in the Indian 
business. All this silver, when hardly arrived, quickly found 
its way to the continent, where the revolution caused a forma- 
tion of hoards at all points. The same silver largely made the 
trip back to India in 1850, since the stand of the rates of ex- 
change made this profitable. 



The monetary system is essentially Catholic, the credit sys- 
tem essentially Protestant. " The Scotch hate gold." In the 
form of paper the monetary existence of commodities has only 
a social life. It is Faith that makes blessed. Faith in mon- 
ey-value as the imminent spirit of commodities, faith in the 
prevailing mode of production and its predestined order, faith 
in the individual agents of production as mere personifications 
of selfexpanding capital. But the credit system does not 
emancipate itself from the basis of the monetary system any 
more than Protestantism emancipates itself from the founda- 
tions of Catholicism. 



CHAPTEE XXXVI. 

PRECAPITALIST CONDITIONS. 

Interest bearing capital, or usurer's capital, as we may call 
it in its ancient form, belongs like its twin brother, commer- 
cial capital, to the antediluvian forms of capital, which long 
precede the capitalist mode of production and are found in 
the most diverse economic formations of society. 

The existence of usurer's capital requires merely that at 
least a portion of the products should be converted into com- 
modities, and that money with its various functions should 
have developed along with the trade in commodities. 

The development of capital attaches itself to that of mer- 



Precapitalist Conditions. 697 

chant's capital, more particularly to financial capital. In 
ancient ErOme, starting from the last stages of the republic, 
when manufacture stood far below its ancient average devel- 
opment, merchants' capital, financial capital, and usurers' 
capital had reached their highest point within that ancient 
form. 

We have seen that hoarding necessarily appears with money. 
But the professional hoarder does not become important un- 
til he becomes transformed into a usurer. 

The merchant borrows money in order to make a profit with 
it, in order to use it as capital, that is, to spend it as such. 
Hence the money lender stands in the same relation to him in 
former stages of society as he does to the modern capitalist. 
This specific relation was felt also by the Catholic universi- 
ties. " The universities of Alcala, of Salamanca, of Ingol- 
stadt, of Freiburg in the Breisgau, Mayence, Cologne, Treves, 
one after another recognized the legality of interest for com- 
mercial loans. The first five of these approbations were de- 
posited in the archives of the Consulate of the city of Lyons 
and published in the appendix of the Traite de Vusure et des 
interets, at Lyons, by Bruyset-Ponthus." (M. Augier, Lg 
Credit Public, etc., Paris, 1842, p. 206.) 

In all forms, in which slave economy (not the patriarchal 
kind, but that of later Grecian and Koman times) serves as 
a means of amassing wealth, where money is a means of ap- 
propriating the labor of others by purchase of slaves, land, 
etc., there money becomes useful as capital, brings interest, 
for the reason that it may be so invested. 

However, the most characteristic forms, in which usurers' 
capital exists in times antedating capitalist production, are 
two. I say purposely characteristic forms. The same forms 
repeat themselves on the basis of capitalist production, but as 
mere subordinate forms. They are then no longer the forms 
which determine the character of interest-bearing capital. 
These tv/o forms are : First, usury by lending money to ex- 
travagant persons of the higher classes, particularly to land 
owners ; secondly, usury by lending money to the small pro- 
ducer who is in possession of his own means of employment. 



698 Capitalist Production. 

which includes the artisan, but more particularly the peasant, 
since under precapitalist conditions, so far as they permit of 
independent individual producers, the peasant class must form 
the overwhelming majority. 

Both the ruin of rich land owners by usury and the spolia- 
tion of the small producers leads to the formation and concen- 
tration of large money-capitals. But to what extent this proc- 
ess does away with the old mode of production, as happened 
in modem Europe, and whether it places in its stead the cap- 
italist mode of production, depends entirely upon the stage of 
historical development and the circumstances surrounding it. 
Usurers' capital as the characteristic form of interest-bearing 
capital corresponds to the predominance of small scale produc- 
tion, of self employing peasants and small craft masters. When 
the laborer is confronted by the means of employment and by 
the product of labor in the shape of capital, as he is under 
the capitalist mode of production, he has no occasion to bor- 
row any money as a producer. When he does any borrowing 
of money, he does it to secure personal necessities, for instance, 
at the pawnshop. But wherever the laborer is the owner, 
whether actual or nominal, of his means of employment and 
of his product, he is confronted as a producer by the capital 
of the money lender, which stands in his way as a usurer's 
, capital. ITewman expresses the matter weakly, when he says 
^ that the banker is respected while the usurer is hated and de- 
/ spised, because the banker lends to the rich, whereas the us- 
urer lends to the poor. (J. W. ISTewman, Lectures on Politi- 
cal Economy, London, 1851, p. 44.) He overlooks the fact 
that the difference of two modes of social production and of 
the corresponding social orders intervenes here and that the 
matter is not exhausted by the distinction between rich and 
poor. On the contrary, the usury which sucks the life out of 
the small producer goes hand in hand with the usury which 
sucks the rich owner of large estates dry. As soon as the us- 
ury of the Roman patricians had completely ruined the 
Roman plebeians, the small peasants, this form of exploita- 
tion had an end and slave economy undisguised took the place 
of small peasant economy. 



Precapitalist Conditions. 699 

Under the form of interest the whole of the surplus over 
the necessary means of subsistence (the amount of what be- 
comes wages later on) of the producers may here be devoured 
by usury (this assumes later the form of profit and ground 
rent), and hence it is very absurd to compare the level of this 
interest, which assimilates all the surplus-value with the ex- 
ception of the share claimed by the state, with the level of the 
modem rate of interest, which gives to the interest normally 
no more than a part of the surplus-value. Such a comparison 
forgets that the wage worker gives to the capitalist, who em- 
ploys him, profit, interest and ground rent, that is, the whole 
surplus-value produced by him. Carey makes this absurd 
comparison in order to show, how advantageous the develop- 
ment of capital and the fall in the rate of interest, that goes 
with it, is for the laborer. When it is said that the usurer, 
not content with squeezing the surplus-labor out of his victim, 
gradually acquires possession of the means of employment, 
house and land, of this victim and is thus continually engaged 
in expropriating him, it is forgotten that this complete expro- 
priation of the laborer from his means of employment is not 
a result which the capitalist mode of production seeks to ac- 
complish, but rather the established condition from which it 
starts out. The wage slave is barred from becoming a cred- 
itor's slave just as the real slave was, at least in his capacity 
as a producer. The wage slave may eventually become a cred- 
itor's slave in his capacity as a consumer. Usurer's capital 
in this form, in which it appropriates indeed all surplus-la- 
bor of the direct producers, does not alter the mode of produc- 
tion. The ownership, or at least the possession of the means 
of employment by the producers, and small scale production 
corresponding to this, are its essential prerequisites. Here 
capital does not subordinate labor to itself directly, and does 
not confront the laborer as industrial capital, while usurer's 
capital merely impoverishes this mode of production, para- 
lyzes the productive forces instead of developing them, and at 
the same time perpetuates these miserable conditions, in which 
the social productivity of labor is not developed at the expense 



700 Capitalist Production. 

of labor itself, as it is imder the capitalist mode of produc- 
tion. 

On the one hand, usury thus exerts an undermining and 
destructive influence on ancient and feudal wealth and ancient 
and feudal property. On the otlier hand it undermines and 
ruins small peasants' and small burghers' production, in 
short all forms, in which the producer still appears as the 
owner of his conditions of production. Under the developed 
capitalist mode of production, the laborer is not the owner of 
his means of employment, of the field which he cultivates, of 
the raw materials which he works up, etc. But under this 
system the separation of the producer from the means of em- 
ployment is the expression of an actual revolution of the mode 
of production itself. The individual laborers are brought to- 
gether in large workshops for the purpose of a division of la- 
bor, which dovetails one man's activity into another's. The 
tool becomes a machine. The mode of production no longer 
permits this dislocation of the means of production, which goes 
with small property, nor does it permit the isolation of the la- 
/ borer himself. Under the capitalist mode of production, 
usury can no longer separate the producer from his means of 
production, for the simple reason that they have already been 
separated. 

Usury centralises money wealth, where the means of pro- 
duction are disjointed. It does not alter the mode of produc- 
tion, but attaches itself to it as a parasite and makes it miser- 
able. It sucks its blood, kills its nerve, and compels repro- 
duction to proceed under even more disheartening conditions. 
Hence the popular hatred against usurers, which was most 
pronounced in the ancient world, where the ownership of the 
means of production by the producer himself was at the same 
time the basis of the political conditions, of the independence 
of the citizen. To the extent that slavery prevails, or to the 
extent that the surplus product is consumed by the feudal lord 
and his retinue, while either the slave owner or the feudal 
lord fall into the clutches of the usurer, the mode of produc- 
tion remains the same. Only, it becomes harder on the la- 
I borer. The indebted slave holder or feudal lord becomes more 



Precapitalist Conditions. 701 

oppressive, because he is himself more oppressed. Or he 
makes finally room for the usurer, who becomes a landed pro- 
prietor or a slave holder himself, like the knights in ancient 
Rome. Into the place of the old exploiters, whose exploita- 
tion was more or less patriarchal, because it was largely a 
means of political power, steps a hard, money-mad parvenue, 
But the mode of production itself is not altered thereby. 

Usury works revolutionary effects in all precapitalist modes 
of production only so far as it destroys and dissolves those 
forms of property, which form the solid basis of the political 
organisation, and which must be continually reproduced- in 
order that the political organisation may endure. Under the 
Asiatic forms usury may last for a long time, without produc- 
ing anything else but economic disintegration and political 
rottenness. ISTot until the other prerequisites of capitalist pro- 
duction are present, does usury become a means of assisting 
in the formation of the new mode of production, by ruining 
the feudal lord and small scale production on the one hand, 
and centralising the means of production into capital on the 
other. 

In the Middle Ages no country had any general rate of in- 
terest. The Church forbade all lending at interest from the 
outset. Laws and courts protected loans but very little. In- 
terest was so much higher in individual cases. The limited 
circulation of money, the necessity of making most payments 
in cash, compelled people to borrow money, so much more the 
less the business of exchanging money was developed. There 
was a great deal of difference, both in the rates of interest and 
the conceptions of usury. In the time of Charlemagne it was 
considered usury to charge 100%. In Lindau on Lake Boden 
some resident burghers took 216f % in 1348. In Zurich the 
City Council decreed that 43^% should be the legal rate of 
interest. In Italy 40% had to be paid sometimes, although 
the ordinary rate did not exceed 20% from the 12th to the 
14th century. Verona ordered that 12^% should be the legal 
rate. Emperor Frederick II. fixed the rate at 10%, but only 
for Jews. He did not care to speak for the Christians. In 
the Rhine provinces 10% was the rule as early as the 13th 



702 Capitalist Production. 

century. (Hiillmann, Gescliichte des Stddtewesens, II, pp. 
55-57.) 

Usurer's capital uses a capital's method of exploitation with- 
out its mode of production. This state of affairs repeats it- 
self also inside of bourgeois economy, in backward lines of in- 
dustry or in those lines, which resist the transition to the mod- 
ern mode of production. For instance, if we wish to compare 
the English rate of interest with the Indian, we should not 
take the rate of interest of the Bank of England, but rather 
that, say, of the lenders of small machinery to small producers 
in domestic industry. 

Usury as an enemy of consuming wealth is historically im- 
portant inasmuch as it is itself a process generating capital. 
Usurer's capital and merchant's wealth promote the formation 
of moneyed wealth independent of landed property. The less 
products assume the character of commodities, and the less 
exchange-value seizes the whole breadth and depth of produc- 
tion, the more does money appear as real wealth, that, is, as 
wealth in general compared to its limited existence in use- 
values. This is the basis of hoarding. Aside from money as 
world money and a hoard, it assumes the absolute form of com- 
modities particularly as a means of payment. And it is espe- 
cially its function as a means of payment, which develops in- 
terest and with it money-capital. What squandering and cor- 
rupting wealth wants is money as such, money as a means of 
buying everything (also as a means of paying debts). The 
small producer needs money above all to make payments. 
(The conversion of tithes in kind and service in kind to land- 
lords and to the state into money rent and money taxes plays 
a great role in this.) In either case money is used as money 
proper. On the other hand hoarding becomes real only in this 
way, and thus fulfills the dreams of the usurer. What the 
owner of a hoard demands is not capital, but money as such ; 
but by means of interest he converts his hoard of money into 
capital for himself, that is, into a means of grabbing surplus- 
labor in part or entirely, and with it securing a hold on a part 
of the requirements of production itself, even though this may 
remain separate from him as a nominal property of others. 



Precapitalist Conditions. 703 

Usury lives apparently in the pores of production in the same 
way as the gods live in the spaces between worlds according 
to Epicurus. Money is obtainable so much harder, the less 
products assume the general form of commodities. Hence 
the usurer acknowledges no other barrier but the capacity or 
resistive power of those who need money. In small peasants' 
and small burghers' production money serves as a means of 
purchase mainly, whenever the laborer (who is still to a pre- 
dominant extent the owner of his means of production under 
these modes of production) loses his means of employment by 
accident or by extraordinary upheavals, or at least does not 
become able to recover them in the ordinary course of repro- 
duction. Means of subsistence and raw materials constitute 
the essential part of these requirements of production. If 
these become dearer, it may be impossible to reproduce them 
out of the returns for the product, just as mere crop failures 
may prevent the peasant from reproducing his seed grain in 
its natural form. The same wars, by which the Roman patri- 
cians ruined the plebeians, by compelling them to serve as sol- 
diers and thus preventing them from reproducing the require- 
ments of their productive activity and making paupers of 
them (and pauperization, depletion or loss of the prerequisites 
of reproduction is here the predominent form), filled the sheds 
and cellars of the patricians with looted copper, the money of 
that time. Instead of giving to the plebeians directly the 
necessary commodities, grain, horses, cattle, they loaned to 
them this copper, for which they had no use themselves, and 
availed themselves of this condition for the purpose of enforc- 
ing enormous interest by usury, thereby turning the plebeians 
into their debtor slaves. Under the reign of Charlemagne the 
Frankish peasants were likewise ruined by wars, so that 
nothing remained to them but to become serfs instead of debt- 
ors. In the Roman empire it happened frequently that fam- 
ines caused the sale of children, or the voluntary sale of free 
men by themselves, into slavery to the rich. So much for 
general turning points. In individual cases the maintenance 
or loss of the requirements of production on the part of the 
small producers depend on a thousand accidents, and every 



c 



^04 Capitalist Production. 

one of such accidents or losses signifies impoverishment and 
becomes an opening, into which the parasite of usury may 
enter. The mere death of a cow may render the small pro- 
ducer unable to renew his reproduction on the former scale. 
Then he falls into the clutches of the usurer, and once he is 
in the usurer's power he never extricates himself. 

The typical great and peculiar domain of the usurer, how- 
ever, is the function of money as a means of payment. Ev- 
ery payment of money, ground rent, tribute, tax, etc., which 
becomes due at a certain date, carries with it the necessity of 
securing money for such a purpose. Hence usury attaches it- 
self from the days of the ancient Romans to those of modern 
times to the tax renters, the fermiers generaux, the receveurs 
generaux. Furthermore, commerce and the extension of com- 
modity-production carry with them the separation of purchase 
and payment by an interval of time. The money has to be 
on the spot at a definite date. In what manner this may lead 
to circumstances, in which the money-capitalist and usurer 
may merge into one even nowadays, is shown by the modern 
money panics. This same usury, however, becomes one of the 
principal means of further developing the necessity of using 
money as a means of payment, by getting the producer ever 
more deeply into debt and destroying his usual means of 
payment in such a way that the burden of interest makes even 
his normal reproduction impossible. In that case usury 
sprouts up out of money as a means of payment and extends 
this function of money into its own peculiar domain. 

The development of the credit system takes place as a 
reaction against usury. But this should not be misunderstood, 
nor interpreted in the manner of the ancient writers, the 
church fathers, Luther, or the older socialists. It signifies 
no more and no less than the subordination of interest-bearing 
capital to the conditions and requirements of the capitalist 
mode of production. 

On the whole, interest-bearing capital under the modem 
credit-system is adapted to the conditions of the capitalist 
mode of production. Usury as such does not merely per- 
petuate itself, but is even freed by nations with a developed 



Precapitalist Conditions. 705 

capitalist production from those fetters, which were imposed 
•upon it by the old legislation. Interest-bearing capital 
retains the form of usurer's capital in its transactions with 
such persons or classes, or those in such circumstances, as do 
not borrow in the sense corresponding to the capitalist mode 
of production, or in which borrowing cannot take place in 
that sense. This applies to borrowing from individual want 
at the pawnshop; to lending money for the purpose of 
squandering on the part of wealthy spendthrifts; or to bor- 
rowing money on the part of producers who are not capitalist 
producers, such as small farmers, craftsmen, etc., who are 
still the o^vners of their own requirements of production; 
finally to borrowing on the part of capitalist producers, who 
still operate on such a small scale, that they approach those 
self-employing producers. 

What distinguishes the interest-bearing capital, so far as 
it is an essential element of the capitalist mode of pro- 
duction, from usurer's capital is in no way the nature or the 
character of this capital itself. It is merely the altered con- 
ditions, under which it operates, and consequently the totally 
changed character of the borrower, who transacts business 
with the money lender. Even in cases where a man without 
wealth receives credit in his capacity as an industrial or 
merchant, it is done for the confident expectation, that he 
will perform the function of a capitalist and appropriate 
some unpaid labor with the borrowed capital. He receives 
credit in his capacity as a potential capitalist. This circum- 
stance, that a man without wealth, but with energy, solidity, 
ability and business sense may become a capitalist in this 
way, is very much admired by the apologists of the capitalist 
system, and the commercial value of each individual is pretty 
accurately estimated under the capitalist mode of produc- 
tion. Although this circumstance continually brings an 
unwelcome number of new soldiers of fortune into the field 
and into competition with the already existing individual capi- 
talists, it also secures the supremacy of capital itself, expands 
its basis, and enables it to recruit ever new forces for itself 
out of the lower layers of society. In a similar way the 

2S 



7o6 Capitalist Production. 

circumstance, that the Catholic Church in the Middle Ages 
formed its hierarchy out of the best brains of people without 
regard to estate, birth, or wealth, was one of the principal 
means of fortifying priest rule and suppressing the laity. 
The more a ruling class is able to assimilate the most 
prominent men of a ruled class, the more solid and dangerous 
is its rule. 

Instead of the anathema against interest-bearing capital 
in general, it is on the contrary its explicit recognition, from 
which the initiators of the modern credit system take their 
start. 

We are not speaking here of such reactions against usury, 
as tried to protect the poor against it, like the Monts-de-piete 
(1350 in Sarlins of the Franche-Comte, later in Perugia and 
Savona of Italy, 1400 and 1479). These are remarkable 
mainly because they show the irony of history, which turns 
pious wishes into their very opposite as soon as they are 
realised. According to a moderate estimate the English 
working class pays 100% to the pawnshops, those modern 
successors of the Monts-de-piete.^^^ ]^either are we speaking 
of the credit phantasies of a man like Dr. Hugh Chamber- 
leyne or John Briscoe, who attempted during the last decade 
of the 17th century to emancipate the English aristocracy 
from usury by means of a country bank with paper money 
based on real estate.-^^'* 

The credit associations, which were established in the 12th 
and 14th centuries in Venice and Genoa, arose from the need 

"• " It is in consequence of frequent pawning and redeeming within the same 
month, and of pawning one article in order to redeem another, and of thus obtain- 
ing a small difference in money, that the pawnshop interest becomes so excessive. 
In London there are 240 authorized pawnshop owners, and in the provinces about 
1450. The employed capital is estimated at about one million. It is turned over 
at least three times per year, and every time at an average of 33^%; so that the 
lower classes of England pay 100% annually for the temporary loan of one 
million, aside from losses due to lapses of pawned articles." (J. J. Tuckett, A 
History of the Past and Present State of the Labouring Population. London, 
1846, I, p. 114.) 

11* Even in the titles of their works they state as their principal purpose " the 
general welfare of the landed proprietors, the great appreciation of the value 
of real estate, the liberation of the nobility and of the gentry, etc., from taxation, 
the augmentation of their annual income, etc." Only the usurers were to lose, 
those worst enemies of the nation, who had done more injury to the nobility and 
yeomanry than an army of invasion from France could have done. 



Precapitalist Conditions. 707 

of marine commerce and wholesale trade connected with it 
to emancipate themselves from the domination of ancient 
usury and from the monopolists of the money business. The 
fact that the bona fide banks^ which were founded in those 
city-republics, assumed at the same time the shape of in- 
stitutions for public credit, from which the state received 
loans on future tax revenues, is explained by the circumstance 
that the merchants forming such associations were the 
prominent men of those states and as much interested in 
emancipating their state as themselves from the exactions of 
usurers, ^^^ and at the same time getting a better and more 
secure control of the states themselves. Hence, when the 
Bank of England was being planned, the Tories raised the 
objection: "Banks are republican institutions. Flourishing 
banks exist in Venice, Genoa, Amsterdam, and Hamburg. 
But who ever heard of a Bank of France or Spain ? " 

The Bank of Amsterdam, in 1609, did not mark an epoch 
in the development of the modem credit system any more 
than that of Hamburg in 1619. It was purely a bank for 
deposits. The checks issued by the bank were indeed merely 
receipts for the deposited, coined and uncoined, precious 
metal, and circulated only with the endorsement of those who 
received them. But in Holland commercial credit and deal- 
ing in money had developed together with commerce and 
manufacture, and the interest-bearing capital had been 
subordinated to industrial and commercial capital by the 
course of development itself. This showed itself even in the 
lowness of the rate of interest. And Holland was considered 
in the I7th century as the model country of economic develop- 

"' " Charles II. of England, for instance, still had to pay enormous interest of 
usury and agios to the gold smiths " (the precursors of the bankers), " as much as 
20 to 30%." A business so profitable induced " the gold smiths to make more 
and more loans to the King, to anticipate the entire income on taxes to get a 
lien on every concession of Parliament in the way of money as soon as it had 
been made, also to compete against one another in buying up and giving pawn on 
bills, orders and tallies, so that in reality all incomes of the state passed through 
their hands." (John Francis, History of the Bank of England, London, 1848, I 
p. 31.) " The erection of a bank had been suggested several times before that. 
It was at last a necessity" (L. c., p. 38). "The bank was a necessity for the 
government itself, sucked dry by usurers, in order to obtain money at a reasonable 
rate of interest, on the security of parliamentary concessions." (L. c, p. 59 
and 60.) 



7o8 Capitalist Production. 

ment, as England is now. The monopoly of old-style usury, 
based on poverty, had been overthrown in that country of its 
own weight. 

During the entire 18th century Holland is pointed out as 
an example and the cry raised for a compulsory lowering of 
the rate of interest (and legislation acted on this hint), in 
order to subordinate the interest-bearing capital to the com- 
mercial and industrial capital, instead of maintaining the 
reverse condition. The main spokesman of this movement is 
Sir Josiah Child, the father of normal English bankerdom. 
He declaims against the monopoly of the usurers in much 
the same way that the wholesale clothing manufacturer Moses 
& Son do when posing as the leaders of the fight against the 
monopoly of the private tailors. This Josiah Child is at 
the same time the father of English stock jobbing. Thus he, 
the autocrat of the East India Company, defends its monopoly 
in the name of free trade. About Thomas Manley ("^ Interest 
of Money Mistaken"') he says: "As the champion of the 
timid and trembling band of usurers he erects his batteries 
at that point, which I have declared to be the weakest . . . 
he denies point blank that the low rate of interest is the cause 
of wealth and vows that it is merely its effect." Traites sur 
le Commerce, etc., 1669, translated in Amsterdam and Berlin, 
1754.) " If it is commerce that enriches a country, and 
if a lowering of interest increases commerce, then a lowering 
of interest or a restriction of usury is doubtless a fruitful 
primary cause of the wealth of a nation. It is not at all 
absurd to say that the same thing may be simultaneously a 
cause under certain circumstances, and an effect under others." 
(L. c, p. 55.) " The egg is the cause of the hen, and the 
hen is the cause of the egg. The lowering of interest may 
cause an increase of wealth, and the increase of wealth may 
cause a still greater reduction of interest." (L. c, p. 156.) 
" I am the defender of industry and my opponent defends 
laziness and sloth." (P. 179.) 

This violent fight against usury, this demand for the 
subordination of the interest-bearing under the industrial 
capital, is but the herald of the organic creations, that 



Precapitalist Conditions. 709 

establish these prerequisites of capitalist production in the 
modern banking system, which on the one hand robs usurer's 
capital of its monopoly by concentrating all fallow money 
reserves and throwing them on the money-market, and on the 
other hand limits the monopoly of the precious metals them- 
selves by creating credit-money. 

The same opposition to usury, the demand for emancipation 
of commerce, industry and of the state from usury, which we 
observe here in the case of Child, will be found in all writings 
on banking during the last third of the 17th and the beginning 
of the 18th centuries. With them go also colossal illusions 
about the miraculous effects of credit, the abolition of the 
monopoly of precious metals, their displacement by paper, 
etc. The Scotchman William Patterson, the founder of the 
Bank of England and the Bank of Scotland, is by all odds 
Law the First. 

Against the Bank of England all goldsmiths and pawn- 
brokers raised a howl of rage. (Macaulay, History of Eng- 
land, IV., p. 499.) During the first ten years the Bank had 
to struggle with great difficulties ; great enmity from without ; 
its notes were only accepted far below their nominal value 
. . . the goldsmiths (in whose hands the trade with 
precious metals served as a basis of a primitive banking 
business) intrigued considerably against the Bank, because 
their business was reduced by it, their discount lowered, and 
their business with the government had fallen into the hands 
of this antagonist. (J. Francis, 1. c, p. 73.) 

Even before the establishment of the Bank of England a 
plan for a national bank of credit was suggested in 1683, 
which had for its purpose, among others, " that business men, 
when they possess a considerable quantity of goods, may 
deposit their goods with the assistance of this bank and take 
up a credit on their tied-up supplies, employ their hands, 
and increase their business, until they find a good market, 
instead of selling at a loss." After many difficulties this 
Bank of Credit was erected in Devonshire House in Bishops- 
gate Street. It made loans to industrials and merchants on 
security of deposited goods to the amount of three quarters 



7IO Capitalist Production. 

of their value, in bills of exchange. In order to make these 
bills of exchange marketable, a number of people in each 
branch of business were organised into a society, from whom 
every possessor of such bills should be able to get goods with 
the same facility as though he were to offer them cash pay- 
ment. This bank did not do a flourishing business. Its 
machinery was too complicated, the risk too great in case 
of a depreciation of commodities. 

If we go by the real content of those writings, which ac- 
company and promote theoretically the formation of the 
modern credit system in England, we shall not find anything 
in them but the demand for a subordination of interest-bearing 
capital, and of loanable means of production in general, under 
the capitalist mode of production as one of its prerequisites. 
On the other hand, if we cling to the mere phraseology, we 
shall be frequently surprised by their agreement, down to the 
very expressions, with the banking and credit illusions of the 
Saint-Simonists. 

Just as the cultivateur in the writings of the physiocrats does 
not signify the actual tiller of the soil, but the great land 
owner, so the travailleur with Saint-Simon, and continuing 
on through his disciples, does not signify the laborer, but 
the industrial and commercial capitalist. " A travailleur 
(worker) needs help, backers, laborers; he looks for such 
as are intelligent, able, devoted; he puts them to work, and 
their labor is productive." (Religion saint-simonienne, 
Economie politique et Politique. Paris, 1831, p. 104.) 

In fact, one should not forget that only in his last work, 
Le Nouveau Christianisme, does Saint-Simon speak directly 
for the working class and declare their emancipation to be 
the end of his efforts. All his former writings are, indeed, 
mere glorifications of modern bourgeois society against feudal 
society, or of industrials and bankers against marshals and 
jurist law-makers of the ISTapoleonic era. What a difference 
compared with the contemporaneous writings of Owen!^^^ 

"^* Marx would surely have modified this passage considerably, if he had 
worked his manuscript over. It was inspired by the role of the ex-Saint-Simonists 
under the second empire in France, where just at the time when Marx wrote the 
above the world-redeeming credit-phantasies of this school, by force of history as 



Precapitalist Conditions. 711 

Among his followers, like wise, the industrial capitalist 
remains the travailleur par excellence, as the above quoted 
passage indicates. After reading their writings critically, 
one will not be surprised, that the realization of their dreams 
of banks and the upshot of their critique materialised in the 
Credit mohilier . founded by the Ex-Saint-Simonist Emile 
Pereire. This form of credit could become prevalent only in 
a country like France, where neither the credit system nor 
great industries had become developed to a modern scale. 

In the following passage of the '' Doctrine de 8aint-8imon, 
Exposition, Premiere annee, 1828-29 " (Third edition, Paris, 
1831), the germ of the Credit mohilier is already contained. 
It is easy to understand, that the banker can lend money more 
cheaply than the capitalist and the private usurer. The 
bankers are, therefore, " able to procure tools to the industrials 
far more cheaply, that is, at a lower interest than the real 
estate owners and capitalists can, who may be more easily 
mistaken in their. choice of borrowers." (P. 202.) But the 
authors themselves add in a footnote: "The advantage that 
would follow from an intervention of bankers between the 
idle and the travailleurs is often balanced, or even annulled, 
by the opportunities offered by our disorganized society to 
Egoism, which may manifest itself in various forms of fraud 
and charlatanry. The bankers often come between the idle 
and the travailleurs for the purpose of exploiting both of 
them to the injury of society." Travailleur means here 
industrial capitalist. For the rest it is a mistake to consider 
the means at the command of banks merely as means of idle 
people. In the first place the banks hold that portion of 
capital, which industrials and merchants own temporarily in 

irony, were being realised in the shape of a swindle of a magnitude never wit- 
nessed before. Later Marx spoke only with admiration of the genius and ency- 
clopedic brain of Saint-Simon. The peculiarity of this writer in ignoring the 
antagonism between the bourgeoisie and the proletariat that was just then coming 
into existence in France, and of counting that part of the bourgeoisie, which was 
active in production, among the travailleurs, corresponds to Fourier's conception, 
who wanted to reconcile capital and labor. This explains itself out of the eco- 
nomic and political conditions of France in those days. The fact that Owen was 
more farseeing in this respect is due to his different environment, for he lived in 
a period of industrial revolution and of class antagonism which were becoming 
acute. — F. E, 



712 Capitalist Production. 

the form of unemployed money, as a money reserve or as cap- 
ital to be invested. It is idle capital, but not capital of 
idle people. In the second place the banks hold that portion 
of the revenues and savings of all kinds which is to be tem- 
porarily or permanently accumulated. Both things are es- 
sential for the character of the banking system. 

But it should never be forgotten, that money, in the first 
place, in the form of precious metals, remains the basis from 
which the credit system naturally can never detach itself. 
In the second place, it must be kept in mind that the credit 
system has for its premise the monopoly of the social means 
of production in the hands of private people (in the form 
of capital and landed property), that it is itself on the one 
hand an immanent form of the capitalist mode of production, 
and on the other hand one of the impelling forces of the 
development of this mode of production to its highest and 
ultimate form. 

The banking system, so far as its formal organisation and 
centralisation is concerned, is the most artificial and most de- 
veloped product turned out by the capitalist mode of produc- 
tion, a fact already expressed in 1697 in "Some Thoughts of 
the Interests of England." This accounts for the immense 
power of such an institution as the Bank of England over 
commerce and industry, although their actual movements re- 
main quite outside of its sphere and it is passive toward them. 
It presents indeed the form of universal bookkeeping and 
of a distribution of products on a social scale, but only the 
form. We have seen that the average profit of the individual 
capitalist, or of every individual capital, is determined, not 
by the surplus-labor appropriated at first hand by each capital, 
but by the total quantity of surplus-labor appropriated by 
the total capital, whereof each individual capital receives a 
dividend as an aliquot part of the total capital This social 
character of capital is promoted and fully realised by the 
complete development of the credit and banking system. On 
the other hand this goes still farther. It places at the 
disposal of the industrial and commercial capitalists all the 
available, or even potential, capital of society, so far as it 



Precapitalist Conditions. 713 

has not been actively invested, so that neither the lender nor 
the user of such capital are its real owners or producers. 
This does away with the private character of capital and 
implies in itself, to that extent, the abolition of capital. By 
means of the banking system the distribution of capital as a 
special business, as a social function, is taken out of the hands 
of the private capitalists and usurers. But at the same time 
banking and credit thus become the most effective means of 
driving capitalist production beyond its own. boundaries, and 
one of the most potent instruments of crises and swindle. 

The banking system shows, furthermore, by putting dif- 
ferent forms of circulating credit in the place of money, that 
money is in reality nothing but a special expression of the 
social character of labor and its products, so that this char- 
acter, as distinguished from the basis of individual produc- 
tion, must present itself in the last analysis as a thing, as a 
peculiar commodity by the side of the other commodities. 

finally, there is no doubt that the credit system will serve 
as a powerful lever during the transition from the capitalist 
mode of production to the production by means, of associated 
labor; but only as one element in connection with other great 
organic revolutions of the mode of production itself. On the 
other hand, the illusions concerning the miraculous power of 
the credit and banking system, as nursed by some socialists, 
arise from a complete lack of familiarity with the capitalist 
mode of production and the credit system as one of its forms. 
As soon as the means of production have ceased to be converted 
into capital (which includes also the abolition of private 
property in land), credit as such has no longer any meaning. 
This was understood also by the advocates of Saint-Simonism. 
But so long as the capitalist mode of production lasts, in- 
terest-bearing capital as one of its forms also continues and 
constitutes actually the basis of the credit system. Only that 
sensational writer, Proudhon, who wanted to perpetuate the 
production of commodities and yet abolish money ^''-'^, was 
capable of dreaming of a credit gratuit, this monster which 

"^Karl Marx, The Poverty of Philosophy, 1847.— Karl Marx, Critique of 
Political Economy, p. 107. 



714 Capitalist Production. 

was supposed to realise the pious wish of small capitalist pro- 
duction. ^ 

In the '' Religion saint-simonienne, Economie et Politi- 
que" we read on page 45 : " Credit serves the purpose, in 
a society in which some own the instruments of industry 
without the ability or the will to employ them, and in which 
other industrious people have no instruments of labor, of 
transferring these instruments in the easiest manner possible 
from the hands of the former, their owners^ to the hands of 
the others who know how to use them. JSTote that this defini- 
tion regards credit as a result of the way in which property 
is constituted." Therefore credit disappears with this con- 
stitution of property. We read, furthermore, on page 98, 
that the present banks " consider it their business to yield to 
that movement which is started by the transactions taking 
place outside of their domain, not to give them an impulse 
on their part; in other words, the banks perform the role 
of capitalists in their transactions with those travailleurs, to 
whom they loan money," The idea that the banks themselves 
should take the lead and distinguish themselves " through the 
number and usefulness of the organised establishments and 
of the promoted works " (p. 101) contains the Credit mobilier 
in embryo. In the same way Charles Pecqueur demands that 
the banks (or what the Saint-Simonists call a Systeme general 
des- hanques) " should rule production." Pecqueur is es- 
sentially a Saint-Simonist, only much more radical. He de- 
sires that '-' the credit institute . . . should control the 
entire movement of national production." — " Try to create 
a national credit institute, which shall advance means to 
propertyless talent and merit, -without, however, knitting these 
borrowers by compulsion into a close solidarity in production 
and consumption, but on the contrary rather enabling them to 
determine their own exchanges and production. In this way 
you will accomj)lish only what the private banks accomplish 
even now, that is, anarchy, a disproportion between produc- 
tion and consumption, the sudden ruin of one, and the sudden 
enrichment of another; so that your institute will never get 
any farther than the point of producing a great deal of 



Precapitalist Conditio-ns. 715 

welfare for one, which amounts to a great deal of suffering 
endured by another . . . only that you will have given 
to the wage laborers assisted by you the means of competing 
among one another in the same way that their capitalist 
masters do now." (Ch. Pecqueur, Theorie Nouvelle d'Econ- 
omie Sociale et Politique, Paris, 1842, p. 434.) 

We have seen that merchants' capital and interest-bearing 
capital are the most ancient forms of capital. In the nature 
of the case, interest-bearing capital assumes in the popular 
conception the form of capital pur excellence. In the case of 
merchants' capital, the activity of a middle man is performed, 
no matter whether it be rated as cheating, labor, or anything 
else. But in the case of interest-bearing capital the self-re- 
producing character of capital, the self-expansion of value, 
the production of surplus-value, surrounds itself with the 
qualities of the the occult. This accounts for the fact that 
even a part of the political economists, particularly in 
countries in which industrial capital is not yet fully de- 
veloped, as in France, cling to interest-bearing capital as the 
fundamental form of capital and regard, for instance, ground 
rent merely as a modified form of it, because the form of 
lending predominates also in it. In this way the internal 
articulation of the capitalist mode of production is completely 
misunderstood, and the fact is entirely overlooked that land, 
like capital, is loaned only to capitalists. Of course, natural 
means of production, such as machines, business buildings, 
etc., may also be loaned instead of money. But they always 
represent a certain sum of money, and the fact that not only 
interest, but also wear and tear has to be paid for them, is 
due to their use-value, the specific natural form of these 
elements of capital. The thing which decides in this case is 
whether they are loaned to the direct producers, which would 
imply the non-existence of the capitalist mode of production, 
at least in the sphere in which this takes place, or whether 
they are loaned to the industrial capitalists, which is the 
basic assumption under the capitalist mode of production. It 
is still more improper and meaningless to drag the lending 
of houses, etc., for individual consumption into this part of 



7i6 Capitalist Production. 

the discussion. That the working class is swindled to an 
enormous extent, in this way as well as in others, is an evident 
fact ; but this is done also by the retail dealer, who sells tliem 
means of subsistence. It is a secondary exploitation, which 
runs parallel with the primary one taking place in the process 
of production itself. The distinction between selling and 
loaning is quite immaterial in this case and merely formal, 
and cannot appear as essential to any one, unless he be wholly 
unfamiliar wdth the actual condition of the problem. 



Both usury and commerce exploit the various modes of pro- 
duction. They do not create it, but attack it from the outside. 
Usury tries to maintain it directly, in order to be able to 
exploit it ever anew, but it is conservative and makes it only 
more miserable. The less the elements of production enter 
the process of production as commodities and come out of it 
as commodities, the more does their descent from money ap- 
pear as a separate act. The more significant the role played 
by circulation in the social reproduction, the more does usury 
flourish. 

That moneyed wealth develops as a special kind of wealth 
means with reference to usurer's capital that it collects all 
its claims in money. It develops so much more in any 
country, the more the mass of production limits itself to 
natural services, etc., that is, to use-values. 

To that extent usury has a double effect. First, it frames 
up an independent moneyed wealth by the side of the mer- 
chant class. In the second place it appropriates to itself the 
prerequisites of labor, that is, it ruins the owners of the old 
requisites of production. Thus it becomes a powerful lever 
for the formation of the requirements of industrial capital. 



Interest in the Middle Ages. 

In the Middle Ages the population was purely agricultural. 
And there, as under feudal rule, commerce can be but small 
and consequently profit but slight. Hence the laws against 



Precapitalist Conditions. 717 

usury were justified in the Middle Ages. Moreover, in an 
agricultural country one has rarely any occasion for borrow- 
ing money, except when reduced by poverty and misery. 
. . . Henry VIII limits interest to 10%, Jacob I. to 8%, 
Charles II, to 6%, Anne to 5%. . . . In those days 
the money-lenders, if not legally, were at least in fact monop- 
olists, and therefore it was necessary to place them under re- 
striction like other monopolists. ... In our times the 
rate of profit regulates the rate of interest; in those times the 
rate of interest regulated the rate of profit. If the money- 
lender loaded a heavy rate of interest on the merchant, then 
the merchant had to add a higher rate of profit to the price 
of his commodities. Consequently a large sum of money was 
taken out of the pockets of the buyers in order to put it into 
the pockets of the money-lenders. (Gilbart, History and 
Principles of Banlcing, pp. 164, 165.) 

" I have been told that 10 gulden are now taken annually 
on every Leipsic fair, that is 30 on each hundred; some add 
the IsTeuenburg fair and make it 40 per hundred; whether 
that is so, I don't know. For shame, where the devil is 
that going to end ? . . . Whoever has now 100 florins at 
Leipsic, takes 40 annually, which is the same as devouring 
one peasant or burgher each year. If one has 1,000 florins, 
he takes 400 annually, which means devouring a knight or a 
rich noble per year. If one has 10,000 florins, he takes 
4,000 per year, which means devouring a rich count each 
year. If one has 100,000 florins, as the great merchants must 
have, he takes 40,000 annually, which means devouring one 
great rich prince each year. If one has 1,000,000 florins, he 
takes 400,000 annually, which means devouring one great 
king each year. And he does not run any risks, either in 
his person or his wares-, does not work, sits near his fireplace 
and roasts apples ; so might a petty robber be sitting at home 
and devour a whole world in ten years." (Bilclier vom 
Kaufhandel und Wucher, 1524. Luther's WorJcs^ Witten- 
berg, 1589, Part VL) 

" Fifteen years ago I wrote against usury, when it had 
spread so alarmingly, that I did not hope for any improve- 



7i8 Capitalist Production. 

ment. Since then it has become so proud, that it does not 
care to be classed as a vice, sin, or shame, but gets itself 
praised as a pure virtue and honor, just as though it were 
doing people a great favor and Christian service. What are 
we going to do now that shame has become honor and vice 
virtue? (Martin Luther, Aji die Pfarherrn wider den 
Wucher zu predigen- Wittenberg,! 540.) 



Jews, Lombards, usurers and bloodsuckers were our first 
bankers, our original bank sharks, their character being such as 
to be called almost infamous. . . . They were joined by 
the London goldsmiths. On the whole . . . our original 
bankers . . . were a very bad crowd, they were greedy 
usurers, stony-hearted vampires. (J. Hardcastle, BatiTcs and 
Banlcers. Second edition, London, 1843, pages 19 and 20.) 

The example given by Venice (in the matter of establishing 
a bank) was quickly imitated ; all sea towns, -and in general 
all towns which had made a name for themselves by their 
independence and their commerce, founded their first banks. 
The return of their ships, which often took a long time, led 
inevitably to the custom of giving credit, which was further 
intensified by the discovery of America and the commerce 
with it. (This is one of the main points.) The freighting 
of ships made the taking of heavy loans necessary, a thing 
already occuring in ancient Athens and Greece. In 1380 the 
Hansa town of Bruges had an insurance company. (M. Au- 
gier, 1. c, pages 202 and 203.) 

To what extent the making of loans to land owners, and 
to wealth consumers in general, still prevailed in the last 
third of the 17th century, even in England, before the de- 
velopment of the modern credit system, may be seen in the 
works of Sir Dudley IsTorth, among others. He was not only 
one of the first English merchants, but also one of the most 
prominent theoretical economists of his time. And he says: 
The money loaned among our people at interest is not even 
to a tenth part given to business people for carrying on their 
affairs ; it is loaned for the greater part for articles of luxury, 



Precapitalist Conditions. 7^9 

and for the expenditures of people, who, although great real 
estate owners, nevertheless spend money faster than is made 
by their real estate; and since they hate to sell their estates, 
prefer to mortgage them. {Discourses upon Trade. Lon- 
don, 1691, pages 6 and Y.) 

Poland in the 18th century: "Warsaw did a gTeat busi- 
ness in exchange, which, however had for its principal basis 
and aim the usury of its bankers. In order to secure money, 
which they might lend to spendthrift nobles at 8% and more, 
they sought and obtained abroad an exchange credit in blank, 
that is, it had no commerce with commodities at all for a 
foundation, but the foreign endorser of the bill stood it 
patiently, so long as the returns from swindling with bills of 
exchange did not fail. However, they paid heavily for this 
by the bankruptcies of men like Tapper and other highly re- 
spected Warsaw bankers." (J. G. Biisch, TJieoretisch-prak- 
tisclie Darstellung der TIandlung , etc., third edition, Ham- 
burg, 1808, volume II, pages 232 and 233.) 
Advantage of the Prohibition of Interest for the Church. 

" The taking of interest had been forbidden by the church. 
But the sale of property for the purpose of getting out of a 
tight place had not been forbidden. It had not even been 
forbidden to transfer property for a certain period to the 
money lender as a security, until such time as the debtor 
should repay his loan, so that the money lender might have 
the use of the property as a reward for the absence of his 
money. . . . The church itself and the various corpora- 
tions and communes belonging to it derived much profit from 
this practice, particularly during the period of the crusades. 
This brought a very large portion of the national wealth into 
the possession of the so-called ' dead hand,' all the more so be- 
cause the Jews were barred from engaging in such usury, 
the possession of such fixed liens not being concealable. 
. . . Without the ban on interest the churches and clois- 
ters would never have become so rich." (L. c, p. 55.) 



PAET VI. 

TEANSFORMATIO:^ OF SURPLUS PROFIT II^TO 
GROUND-RENT. 



CHAPTER XXXVII. 



PKELIMIlSrARIES. 



The analysis of landed property in its various historical 
forms belongs outside of the limits of this work. We shall 
occupy ourselves with it in this place only to the extent that 
a portion of the surplus-value produced by the industrial 
capital falls into the hands of the land owner. We assume, 
then, that agriculture is dominated by the capitalist mode of 
production, just as manufacture is, in other words, that agri- 
culture is carried on by capitalists, who differ primarily from 
the other capitalists only through the element, in which their 
capital and the wage-labor set in motion by this capital are 
invested. So far as we are concerned, the capitalist farmer 
produces wheat, etc., in the same way that the manufacturer 
produces yarn or machines. The assumption that the capi- 
talist mode of production has seized agriculture implies that 
it rules all spheres of production and bourgeois society, so 
that its prerequisites, such as free competition among cap- 
itals, the possibility of transferring them from one sphere of 
production to another, a uniform level of the average rate of 
profit, etc., are fully matured. The form of landed prop- 
erty which we consider here is a specifically historical one, a 
form altered through the influence of capital and of the cap- 
italist mode of production, and evolved either out of feudal 
land ownership, or out of small peasants' agriculture carried 

720 



Preliminaries. 721 

on for a living, in whicli the possession of land constitutes one 
of the prerequisites of production for the direct producer, and 
in which his ownership of land appears as the most advanta- 
geous condition for the prosperity of his mode of production. 
Just as capitalist production is conditioned in a general way 
on the expropriation of the laborers from their requirements of 
production, so capitalist agriculture demands the expropria- 
tion of the rural laborers -from the land and their subordina- 
tion to a capitalist, who carries on agTiculture for the sake 
of profit. For the results of our analysis the objection, tliat 
other forms of landed property and of agriculture have ex- 
isted or still exist, is quite irrelevant. Such an objection 
cannot apply to any one else but to those economists, who 
treat of the capitalist mode of production in agriculture, and 
of the form of landed property corresponding to it, as though 
it were not a historical but an eternal category. 

For our purposes it is necessary to study the modern form 
of landed property, because it is our business to consider the 
typical conditions of production and commerce, which arise 
from the investment of capital in agriculture. Without this 
our analysis of capital would not be complete. We therefore 
confine ourselves exclusively to the investment of capital in 
agriculture strictly so-called, that is, capital invested in the 
production of the principal plant crop, on which a certain 
population lives. We may say wheat, because it is the prin- 
cipal article of food among the modern capitalistically devel- 
oped nations (or mining instead of agTiculture, because the 
laws of both are the same). 

It is one of the g^eat merits of Adam Smith to have shown 
that the ground rent for capital invested in the production of 
such crops as flax, dye stuffs, independent cattle raising, etc., 
is determined by the ground rent obtained from capital in- 
vested in the production of the principal article of subsist- 
ence. In fact no progress has been made in this since his 
time. What we might add in the way of exception or sup- 
plement belongs in a separate study of landed property, not 
here. Hence we shall not speak of landed property outside 

2T 



^^22 Capitalist Production. 

of the land destined for the production of wheat in the man- 
ner of exports, but shall merely refer to it occasionally by way 
of illustration. 

For the sake of completeness we shall remark, that we in- 
clude also water, etc., in the term land, so far as it has an 
owner and belongs as an accessory to the soil. 

Landed property is conditioned on the monopolisation of 
certain portions of the globe by private persons, for the pur- 
pose of making these portions the exclusive spheres of their 
private will and keeping all others away from it.^^^ With 
this in mind, the problem is to ascertain the economic value, 
that is, the employment of this monopoly on the basis of cap- 
italist production. With the legal power of these persons to 
use or misuse certain portions of the globe nothing is settled. 
The use of this power depends wholly upon economic condi- 

• "' Nothing could be more comical than Hegel's development of private property 
in land. According to him, man as an individual must give reality to his will 
as the soul of external nature, and to this end he must take possession of nature 
and make her his private property. If this were the destiny of " the individual," 
of man as an individual, it would follow that every human being must be a land- 
owner, in order to materialise as an individual. Free private property in land, 
a very recent product, is not a definite social relation, according to Hegel, but 
a relation of man as an individual to " nature, an absolute right of man to ap- 
propriate all things." (Hegel, Philosophy of Law, Berlin, 1840, p. 79.) So much 
at least, is evident, that the individual cannot maintain himself as a landowner by 
his mere " will " against the will of another individual, who likewise wants to 
materialise himself in the same piece of land. It requires a good many other 
things besides the good will. Furthermore, it is absolutely beyond any one's 
ken to decide, where " the individual " should draw the line for the realisation 
of his will, whether the presence of his will should materialise in one whole 
country, or whether it should require a whole bunch of countries by whose 
appropriation I might " manifest the supremacy of my will over the thing." Here 
Hegel breaks down. "The appropriation is of a very individual kind; I do not 
take possession of more than I touch with my body, but the second point is at the 
same time that external things have a greater extension than I can grasp. While 
I thus have possession of a thing, something else is likewise in touch with it. 
I exercise my appropriation by my hand, but its scope may be extended." (P. 90.) 
But this other thing is again in touch with still another, and so the boundary 
disappears, within which I might pour my will as the soul of the soil. " If I 
own anything, my reason at once passes on to the idea that not only this prop- 
erty, but also the thing it touches is mine. Here positive right must fix its 
boundaries, for nothing more can be deduced from the conception." (P. 91.) 
This is an extraordinarily naive confession of the " conception," and it proves 
that this conception, which makes at the outset the mistake of regarding a very 
definite legal conception of landed property belonging to bourgeois society as an 
absolute one, does not understand anything of the actual articulations of this 
property. This implies at the same time the confession, that the " positive " law 
may, and must, alter its decisions in proportion as the requirements of social, i.e. 
economic development, change. 



Preliminaries. 7^3 

tions, which are independent of their "will. The legal con- 
ception itself signifies nothing else but that the land owner 
may do with the soil what the owner of commodities may do 
with them. And this conception, this legal conception of 
free property in land, arises in the ancient world only with 
the dissolution of the organic order of society, and in the 
modern world only with the development of capitalist pro- 
duction. Into Asia it has been imported by Europeans in 
but a few places. In that Part of our work, which deals with 
primitive accumulation (Volume I, chapter XXVI), we have 
seen that this mode of production presupposes on the one hand 
the separation of the direct producers from their position as 
mere attachments to the soil (in their capacity of bondsmen, 
serfs, slaves, etc.), on the other hand the expropriation of the 
mass of the people from the land. To this extent the mo- 
nopoly of landed property is a historical premise, and remains 
the basis, of the capitalist mode of production, just as it does 
of all other modes of production, which rests on the exploita- 
tion of the masses in one form or another. But that form 
of landed property, which the capitalist mode of production 
meets in its first stages, does not suit its requirements. It 
creates for itself that form of property in land, which is 
adapted to its requirements, by subordinating agriculture to 
the dominion of capital. It transforms feudal landed prop- 
erty, tribal property, small peasants' property in mark com- 
munes, whatever may be their legal form, into the economic 
form corresponding to the requirements of capitalism. It 
is one of the great outcomes of the capitalist mode of produc- 
tion, that it transforms agriculture from a merely empirical 
and mechanically perpetuated process of the least developed 
part of society into a consciously scientific application of ag- 
ronomics, so far as this is at all feasible under the conditions 
going with private property ;^^^ that it detaches property in 

119 Very conservative agricultural chemists, for instance Johnston, admit that 
a really rational agriculture meets - everywhere insurmountable barriers through the 
existence of private property. So do writers, who are confessedly advocates of 
the monopoly of private property on the globe, for instance Charles Comte in his 
work of two volumes, which has for its special aim the defense of private property. 
" A nation," says he, " cannot attain to the degree of prosperity and power com- 
patible with its nature, unless every portion of the soil nourishing it is assigned 



724 Capitalist Production. 

land on the one side from the relations between master and 
servant, and on the other hand totally separates land as an 
instrument of production from property in land and land 
owners, for v^^hom it represents merely a certain tribute of 
money, which he collects by force of his monopoly from the 
industrial capitalist, the capitalist farmer. It dissolves all 
these connections so thoroughly, that the owner of the land 
may spend his whole life in Constantinople, while his estates 
are in Scotland. Private property in land thus receives its 
purely economic form by discarding all its former political 
and social trappings and implications, in brief all those tra- 
ditional accessories, which are denounced as a useless and 
absurd attachment by the industrial capitalists and their the- 
oretical spokesmen in the heat of their struggle with landed 
property, as we shall see later. The rationalising of agrienl- 
ture on the one hand and thus rendering it capable of opera- 
tion on a social scale^ and the reduction ad dbsurdum of pri- 
vate property in land on the other hand, these are the great 
merits of the capitalist mode of production. Like all its 
other historical advances it bought these also by first com- 
pletely pauperizing the direct producers. 

Before we pass on to the problem itself, we must make a 
few more preliminary remarks in order to forestall misun- 
derstanding. 

The premises for a capitalist production in agriculture are 
these: The actual tillers of the soil are wage-laborers, em- 

to that purpose which agrees best with the general interest. In order to give to 
its wealth a strong development, one sole and highly enlightened will should, if 
possible, take it upon himself to assign to each piece of his domain its task and 
make every piece contribute to the prosperity of all others. But the existence of 
such a will . . , would be incompatible with the division of the land into 
private plots . . . and with the ability of each owner to dispose of his property 
in an almost absolute manner, according to constitutional guarantees." — Johnston, 
Comte, and others, have in mind only the necessity of tilling the land of a certain 
country as a whole, when they speak of an antagonism of private property to a 
rational system of agronomics. But the dependence of the cultivation of par- 
ticular products of the soil upon the fluctuations of market prices, and the con- 
tinual changes of this cultivation with these fluctuations of prices, the whole spirit 
of capitalist production, which is directed toward the immediate gain of money, 
contradicts agriculture, which has to minister to the entire range of permanent 
necessities of life required by a network of human generations. A striking illus- 
tration of this is furnished by the forests, which are occasionally managed in a 
way befitting the interests of society as a whole, when they arc not private 
property, but subject to the control of the state. 



Preliminaries. y2^ 

ployed by a capitalist, the capitalist farmer, who carries on 
agriculture merely as a special field of exploitation for his 
capital, an investment of his capital in a special sphere of 
production. This renting capitalist pays to the land owner, 
the OAvner of the soil exploited by him, a sum of money at 
definite periods fixed by contract, for instance annually (just 
as the borrower of money-capital pays a fixed interest), for 
the permission to invest his capital in this particular sphere 
of production. This sum of money is called ground-rent, no 
matter whether it is paid for agriculture soil, building lots, 
mines, fishing grounds, forests, etc. It is paid for the en- 
tire time, during which the land owner has rented his land 
to the capitalist by contract. Ground-rent, therefore, is that 
form, in which property in land realizes itself economically, 
that is, produces value. Here, then, we have all three classes 
together, which constitute the frame work of modern society, 
and they have divergent interests — wage-laborers, industrial 
capitalists, land owners. 

Capital may be fixed in the soil, may be incorporated in 
it, either in a transient manner, as it is by improvements of 
a chemical nature, fertilization, etc., or more permanently, as 
in drainage canals, irrigation works, leveling, farm buildings, 
etc. In another place I have called the capital thus incor- 
porated in the soil land-capital}^^ It belongs in the cate- 
gories of fixed capital. The interest on the capital thus in- 
corporated in the soil and the improvements thus made in it 
as an instrument of production may form a part of the rent 
paid by the capitalist fanner to the land owner,^^^ but it does 
not constitute that gToimd-rent, strictly speaking, which is 
paid for the use of the soil as such, whether it be in a natural 
state or cultivated. In a systematic treatment of private 
property in land, which is not included in our plan, this part 

'^^ The Poverty of Philosophy, p. 148. There I have made a distinction between 
land-capital and material land. " By merely applying additional capital to land 
already transformed into means of production land-capital may be augmented 
without adding anything to the material land, that is to say, to the extent of the 
land. . . . As capital, land is not more eternal than any other capital. 
Land-capital is fixed capital, but fixed capital is used up as well as circulating capital." 

^^ I say " may," because under certain circumstances this interest is regulated 
by the law of ground-rent and may disappear, for instance, in the case of compe- 
tition between lands of great natural fertility. 



726 Capitalist Production. 

of the revenue of the land owner would have to be discussed 
at length. But a few words about it will suffice here. The 
more transient investments of capital which go with the ordi- 
nary processes of production in agriculture, are made with- 
out exception by the capitalist farmer. These investments, 
like cultivation proper, improve the soil,^22 ^f cultivation is 
carried on in a moderately rational manner and does not re- 
duce itself to a brutal spoliation of the soil, such as used to be 
in vogue among the former slave holders in the United States, 
a thing against which the land owners may provide by con- 
tract. In this way material land is transformed into land- 
capital. A cultivated field is worth more than an unculti- 
vated one of the same natural quality. Likewise the more 
permanent fixed capitals, which are incorporated in the soil 
and worn out in longer time, are largely, and in some spheres 
often exclusively, invested by the capitalist farmer. But as 
soon as the time stipulated by contract has expired — 
and this is one of the reasons why the land owners seek 
to shorten the time of contract as much as possible when cap- 
italist production develops — the improvements embodied 
in the soil become the property of the land owner as 
an inseparable part of the land. In the new contract, which 
the land owner makes, he adds the interest for the capital in- 
corporated in the soil to the real ground-rent. And he does 
this whether he leases the land to the same capitalist who made 
these improvements or to some other capitalist farmer. His 
rent is thus increased; or, if he wishes to sell his land (we 
shall see immediately how its price is determined), its value 
has risen. He sells not merely the soil, but the improved 
soil, the capital incorporated in the soil for which he did not 
pay anything. Quite aside from the movements of real 
ground-rent, this is one of the secrets of the increasing en- 
richment of the land owners, of the continuous inflation of 
their rents, and of the growing money-value of real estate in 
proportion as economic development proceeds. Thus they 
pocket a result of social development brought about without 

^^ See James Anderson and Carey. 



Preliminaries. y2y 

their help, fruges consumere nati, they are born to consume 
the fruits of the earth. Eut this is at the same time one of 
the greatest obstacles to a rational development of agricul- 
ture, because the capitalist renter avoids all improvements 
and ,expenses, for which he cannot expect any returns during 
the time of his lease. We find this fact denounced as such 
an obstacle, not only in the 18th century by James Anderson, 
the actual discoverer of the modern theory of rent, who was 
also a practical capitalist farmer and an advanced agronomist 
for his time, but also in our own days by the opponents 
of the present constitution of landed property in England. 

A. A. Walton, in his " History of the Landed Tenures of 
Great Britain and Ireland" London, 1865, says on this score: 
All the efforts of the numerous agricultural institutes in our 
country cannot accomplish any very important or really ap- 
j)reciable results in the actual progress of improved cultiva- 
tion, so long as such improvements increase in a far higher 
degree the value of real estate and the size of the rent roll 
of the land owner, than they improve the condition of the 
tenant or the farm laborer. The tenants in general know 
quite as well as the land owner, his rent collector, or even the 
president of an ag-ricultural society, that good drainage, am- 
ple manuring, and good management, together with an in- 
creased application of labor, cleaning the land thoroughly and 
working it over, will produce wonderful results, both in the 
improvement of the soil and in an increased production. But 
all this demands considerable expense, and the tenants also 
know very well, that no matter how much they may improve 
the soil or raise its value, the land owner will in the long run 
get the principal benefit of it in raised rents and increased 
land values. . . . They are cunning enough to observe, 
what those speakers [land owners and their agents speaking 
at agTicultural feasts] always forget to tell them, namely that 
the lion's share of all improvements made by the tenants must 
always pass ultimately into the pockets of the land owners. 
. ~Ro matter how much the former tenant may have 
improved his leasehold, his successor will always find, that 



728 Capitalist Production. 

the land owner will raise the rent in proportion to the in- 
creased land value due to previous improvements. (Pages 
96 and 97.) 

In agriculture proper this process does not yet appear quite 
so plainly as when the land is used for building lots. The 
overwhelming part of the land used in England for building 
purposes, but not sold as a freehold, is rented by the land 
owners for 99 years, or for a shorter time if possible. After 
the lajDse of this time the buildings fall into the hands of the 
land owner together with the land. The tenants are obliged, 
says Walton, to deliver the house to the great land owner in 
a good inhabitable condition after the expiration of the lease, 
after they have paid up to this time an exorbitant ground- 
rent. Hardly has the lease expired, when the agent or in- 
spector of the landlord comes, inspects your house, takes care 
that you get it into good condition, takes possession of it and 
annexes it to the domain of liis landlord. The fact is that 
if this system is permitted to exert its full effects for some 
time longer, the entire ownership of houses as well as of 
country real estate will be in the hands of the great landed 
proprietors. The whole West End of London, north and 
south of Temple Ear, belongs almost exclusively to half a 
dozen great landlords, is rented at enormous ground-rents, 
and if the leases have not quite expired, most of them expire 
in rapid succession. The same applies in a greater or smaller 
degree to every city in the Kingdom. But even here this 
greedy system of exclusiveness and monopoly does not stop. 
ISTearly all the docking facilities of our port cities are in the 
hands of the great land leviathans in consequence of the same 
process of usurpation. (L. c, p. 93.) Under these circum- 
stances it is evident that if the census for England and Wales 
in 1861 gives the total population as 20,066,224 and the num- 
ber of house owners as 36,032, the proportion of the o^vners 
to the number of houses and to the population would take on 
a very different aspect, if the great house owners were placed 
on one side and the small ones on the other. 

This illustration of property in buildings is important. In 
the first ])lac;e, it clofirly shows the difference between real 



Preliminaries. 729 

ground-rent and interest on fixed capital incorporated in the 
soil, which may form an addition to the ground-rent. The 
interest on buildings, like that on cajoital incorporated in the 
soil by the tenant, falls into the hands of the industrial cap- 
italist, the building speculator, or the tenant, so long as the 
lease lasts, and has in itself nothing to do with the ground- 
rent, which must be paid annually at stated dates for the use 
of the soil. In the second place it shows, that the capital 
incorporated in the soil ultimately passes into the hands of 
the landlord together with the land, and that the interest on 
it helps to swell his rent. 

Some writers, either acting as spokesmen of landlordism 
against the attacks of bourgeois economists, or endeavoring to 
transform the capitalist system of production from a system 
of antagonisms into one of " harmonies," as did Carey, have 
tried to represent ground-rent, the specific economic expres- 
sion of private property in land, as identical with interest. 
For this would obliterate the antagonism between landlords 
and capitalists. The opposite method v/as employed in the 
beginning of capitalist production. In those days landed 
property was still regarded by popular conception as the prim- 
itive and respectable form of private property, while interest 
on capital was decried as usury. Dudley ISTorth, Locke and 
others, therefore represented interest on capital as a form 
analogous with ground-rent, just as Turgot deduced the justi- 
fication of interest from the existence of ground-rent. — Aside 
from the fact that ground-rent may, and does, exist in its 
pure form without any addition for interest on capital in- 
corporated in the soil, these more recent writers also forget, 
that in this way the landlord does not only receive interest 
on the capital of other people that cost him nothing, but also 
pockets this capital of others without any compensating re- 
turn. The justification of private property in land, like that 
of all other forms of property within a certain mode of pro- 
duction, is that the mode of production is itself a transient 
historical necessity, and this includes- the conditions of pro- 
duction and exchange, which flow from it. It is true, as we 
shall see later, that property in land differs from the other 



730 Capitalist Production. 

kinds of property by the fact that it appears superfluous, and 
even noxious, at a certain stage of development, even from 
the point of view of capitalist production. 

In another form, ground-rent may be confounded vi^ith in- 
terest and its specific character overlooked. Ground-rent as- 
sumes the shape of a certain sum of money, vs^hich the land- 
lord draws annually out of the lease of a certain piece of 
the globe. We have seen that every sum of money may be 
capitalised, that is, considered as the interest on an imaginary 
capital. For instance, if the average rate of interest is 5%, 
then an annual ground-rent of 200 pounds sterling may be 
regarded as the interest on a capital of 4,000 pounds sterling. 
Groimd-rent so capitalised forms the purchase price or value 
of the land, a category which is on its face irrational, just 
as the price of labor is, since the earth is not the product of 
labor and therefore has no value. But on the other hand a 
real relation in production is concealed behind this irrational 
form. If a capitalist buys land yielding a rent of 200 pounds 
sterling annually and pays 4,000 pounds sterling for it, then 
he draws the average interest of 5% on his capital of 4,000 
pounds sterling, just as though he had invested this capital 
in interest-bearing papers or loaned it directly at 5% interest. 
It is the utilisation of a capital of 4,000 pounds sterling at 
5%. On this assumption he would recover the purchase pries 
of his estate in twenty years by its revenues. In England, 
therefore, the purchase price of land is calculated on so many 
years' purchase, and this is merely a different expression for 
the capitalisation of the groimd-rent. It is in fact the pur- 
chase price, not of the land, but of the ground-rent yielded 
by it, calculated on the ordinary rate of interest. But this 
capitalisation of rent has for its premise the existence of rent, 
for rent cannot be explained and derived from its o^vn capital- 
isation. Its existence, independent of its sale, is rather the 
condition from which the inquiry must start. 

It follows, then, that the price of land may rise or fall in- 
versely as the rate of interest rises or falls, if we assume that 
ground-rent is a constant magTiitude. If the ordinary rate 
of interest should fall from 5% to 4%, then the annual 



Preliminaries.. 731 

ground-rent of 200 pounds sterling would represent the an- 
nual self-expansion of a capital of 5,000 pounds sterling in- 
stead of 4,000 pounds sterling. The price of the same piece 
of land would thus have risen from 4,000 to 5,000 pounds 
sterling, or from 20 years' to 25 years' purchase. The re- 
verse would take place in the opposite case. This is a move- 
ment of the price of land, which is independent of the move- 
ment of ground-rent itself and regulated only by the rate of 
interest. But as we have seen that the rate of profit has a 
tendency to fall in the course of social progress, and that the 
rate of interest has the same tendency, so far as it is regu- 
lated by the rate of profit; and since, furthermore, tlie rate 
of interest has a tendency to fall in consequence of the growth 
of loanable capital, aside from the influence of the rate of 
profit, it follows that the price of land has a tendency to rise, 
even independently of the movement of ground-rent and the 
prices of the products of the soil, of which the rent forms a 
part. 

The mistaking ground-rent for the interest form, which it 
assumes for the buyer of the land — a mistake due to 
a complete unfamiliarity with the nature of ground- 
rent — ■ must lead to the most absurd conclusions. Since 
landed property is considered, in all old countries, as a par- 
ticularly noble form of property, and its purchase also as an 
eminently safe investment of capital, the rate of interest at 
which ground-rent is bought is generally lower than that of 
other investments of capital for a long time, so that a buyer 
of real estate draws, for instance, only 4% on his purchase 
price, whereas he would draw 5% for the same capital in 
other investments. In other words, he pays more capital for 
the ground-rent than he would for the same amount of income 
in other investments. This leads Mr. Thiers to conclude in 
his utterly valueless work on La Propriete (a reprint of a 
speech of his made in 1849 against Proudhon in the French 
ISTational Assembly) that ground-rent is low, while it proves 
merely that its purchase price is high. 

The fact that capitalised ground-rent represents itself as the 
price or value of land, so that the earth is bought and sold like 



732 Capitalist Production. 

any other commodity, serves to some apologists as a justifi- 
cation of private property in land, seeing that the buyer pays 
an equivalent for it the same as he does for other commodi- 
ties, and that the major portion of property in land has 
changed hands in this way. The same reason would, in that 
case, serve also to justify slavery, since the returns from the 
labor of the slave, whom the slave holder has bought, repre- 
sent merely the interest on the capital invested in this pur- 
chase. To derive from the sale and purchase of ground-rent 
a justification for its existence signifies to justify its existence 
by its existence. 

It is very important for a scientific analysis of ground- 
rent, that is of the independent and specifically economic form 
of property in land on the basis of capitalist production, to 
study it in its pure form and free from all falsifying and 
obliterating by-work. And it is no less important for an un- 
derstanding of the practical effects of property in land, even 
for a theoretical comprehension of a multitude of facts, 
which run counter to the conception and nature of ground- 
rent and yet appear as modes of existence of ground-rent, to 
know the elements which give rise to such obscurities in 
theory. 

In practice everything appears naturally as ground-rent 
that is paid in the form of lease money by the tenant to the 
landlord for the peirmission of cultivating the soil. What- 
ever may be the composition of this tribute, whatever may 
be its sources, it has this in common with real ground-rent 
that the monopoly of the so-called owner of a piece of the 
globe enables him to levy such a tribute and impose such a 
tax. This tribute furthermore shares with the real ground- 
rent the fact that it determines the price of land, which, as 
we have indicated above, is nothing but the capitalised in- 
come from the lease of the land. 

We have already seen, that the interest for the capital in- 
corporated in the soil may form one of those foreign ingredi- 
ents in ground-rent, an element which must become a contin- 
ually growing addition to the total rent of a certain country 



Preliminaries. 733 

in proportion as economic development proceeds. But aside 
from this interest it is possible that the lease money may con- 
ceal a deduction from the average profit or from the normal 
wages, or both, being made up of them either in part or 
wholly, so that in some cases it may not represent any real 
ground-rent at all and the soil may be valueless. This por- 
tion of the profit, or of wages, appears then as ground-rent, 
because instead of falling normally into the hands of the in- 
dustrial capitalist or the wage worker, it is paid to the land- 
lord in the form of lease money. Economically speaking 
neither the one nor the other of these portions constitutes any 
ground-rent; but in practice they constitute some of the rev- 
enue of the landlord, an economic utilisation of his monopoly, 
just as real ground-rent does, and they have a determining 
influence on land prices just as ground-rent has. 

We are not now speaking of conditions, in which ground- 
rent, the form of landed property adapted to the capitalist 
mode of production, formally exists without the capitalist 
mode of production itself, so that the tenant is not an indus- 
trial capitalist, nor the mode of his management a capitalist 
one. Such is the case in Ireland, The tenant is here gen- 
erally a small farmer. What he pays to the landlord in the 
shape of rent absorbs frequently not merely a part of his 
profit, that is, of his own surplus-labor, to which he is entitled 
as the possessor of his own instruments of production, but 
also a part of his normal wages, which he would receive un- 
der different conditions for the same amount of labor. Be- 
sides, the landlord, who does not do anything for the improve- 
ment of the soil, also expropriates him from his small cap- 
ital, which he incorporates for tlie greater part in the soil by 
his own labor, just as a usurer would do under similar cir- 
cumstances. Only the usurer would at least risk his own 
capital in the operation. This continual robbery is the cen- 
ter of the disputes over the Irish Land Bill, which has for 
its principal aim to compel the landlord, when giving notice 
to his tenant to vacate, should pay him an indemnity for the 
improvements made by him in the soil, or for the capital in- 



734 Capitalist Production. 

corporated by him in tlie land. Palmerston used to meet this 
demand with the cynical answer : " The House of Commons 
is a house of landlords." 

ITor do we speak of exceptional circumstances, in which 
the landlord may enforce a high rent even in countries with 
a capitalist production, although this rent may not be in any 
way connected with the product of the soil. Of such a na- 
ture is the renting of small patches of ground to laborers in. 
English factory districts, either for small gardens or for ama- 
teur agriculture in spare hours. (Reports of Inspectors of 
Factories.) 

We are speaking of ground-rent in countries with a devel- 
oped capitalist production. Among English tenants, for in- 
stance, there is a number of small capitalists, who are des- 
tined and compelled by education, training, tradition, com- 
petition, and other circumstances, to invest their capital as 
tenants in agriculture. They are compelled to be satisfied 
with less than the average profit, and to yield up a part of it 
to the landlords for rent. This is the only condition on which 
they are permitted to invest their capital in the soil, in agri- 
culture. Since the landlords exert everywhere a consider- 
able, in England even an overwhelming, influence on legisla- 
tion, they are in a position to exploit this for the purpose of 
grinding down the entire class of tenants. The corn laws of 
1815, for instance, a bread tax confessedly imposed upon the 
country for the purpose of securing for the idle landlords a 
continuation of their abnormally increased rentals during the 
anti-Jacobin wars, had indeed the effect, with the exception 
of a few extraordinarily rich years, of keeping the prices of 
agricultural products above the level which they could have 
held in free competition. But they did not have the effect 
of keeping prices at that level, which had been ordered by the 
law-making landlords to serve as standard prices in such a 
way as to form the legal limit for the importation of foreign 
corn. But the leases were made out under the impression 
created by these normal prices. As soon as the illusion passed 
away, a new law was made, with new normal prices, which 
were as much an impotent expression of the greedy land- 



Preliminaries. 735 

lord's phantasy as the old ones. In this way the tenants 
were cheated from 1815 to tlie thirties. Hence we have dur- 
ing all this period the standing subject of agricultural dis- 
tress. And with it we have during this period the expropri- 
ation and the ruin of a whole generation of tenants, and the 
appropriation of their places by a new class of capitalists. ^^^ 
A much more general and important fact, however, is the 
depression of the wages of the actual farm laborers below 
their normal average, so that a portion of the wages is de- 
ducted in order to become a part of the lease money and thus 
flowing into the pockets of the landlord instead of the laborer 
under the disguise of ground-rent. This is the case quite 
generally in England and Scotland, with the exception of a 
few favorably situated counties. The inquiries of the Par- 
liamentarian Committees into the scale of wages made before 
the passing of the corn laws in England — so far the 
most valuable and almost unexploited contributions to 
a history of wages in the 19th century, and at the same 
time a monument of disgrace erected for themselves by the 
English aristocracy and bourgeoisie — proved convincingly 
and beyond a doubt that the high rates of rent and 
the corresponding raise in the land prices during the anti- 
Jacobin wars, were due in part to no other cause but the 
deductions from wages and the depression of wages even be- 
low the physical minimum. In other words, a part of the 
wages had been paid over to the landlords. Various circum- 
stances such as the depreciation of money, the handling of 
the poor laws in the agricultural districts, etc., had made 
these operations possible, at a time when the incomes of the 
tenants were rising enormously and the landlords amassed 
fabulous riches. Yes, one of the main arguments for the 
introduction of the corn laws, used by both tenants and land- 
lords, was that it was physically impossible to depress the 
wages of the farm laborers still more. This condition of 

*^* See the anti-corn law prize essays. However, the corn laws always kept 
prices at an artificially higher level. For the better situated tenants this was fa- 
vorable. They profited by the stationary condition, in which the protective duties 
kept the great mass of tenants, who relied with or without reason on the excep- 
tional average price. 



736 Capitalist Production. 

things lias not been materially altered, and in England as 
well as in all European countries a portion of the normal 
wages is absorbed bj the ground-rent the same as ever. When 
Count Shaftsbury, then Lord Ashley, one of the philanthropic 
aristocrats, was so extraordinarily moved by the condition of 
the English factory laborers and acted as their spokesman 
in Parliament during the agitation for a ten hour day, the 
sj)okesmen of the industrials got their revenge by publish- 
ing statistics on the wages of the agricultural laborers in the 
villages belonging to him (see Volume I, chapter XXV, 5e, 
The British Agricultural Proletariat), which showed clearly, 
that a portion of the ground-rent of this philanthropist con- 
sisted of the loot, which his agents filched for him out of the 
wages of the agricultural laborers. This publication is also 
interesting for the reason, that the facts exposed by it may 
rank in the same class with the worst exposures made by the 
Committees in 1814 and 1815. As soon as circumstances 
permit of a temporary raise in the wages of the agricultural 
laborers, a cry goes up from the capitalist tenants to the effect 
that a raising of the wages to their normal level, as custom- 
.;ary in other lines of industry, would be impossible and would 
ruin them, unless ground-rent were reduced at the same time. 
/This is a confession, that the tenants deduct a portion from 
the wages of the laborers under the name of ground-rent and 
pay it over to the landlords. Eor instance, from 1849 to 
1859 the wages of the agricultural laborers rose in England 
through a combination of overwhelming circumstances, such 
as the exodus from Ireland, which cut off the supply of agri- 
cultural laborers coming from that country; an extraordinary 
absorption of the agricultural population by the factories ; a 
demand for soldiers to go to war; an exceptional emigration 
to Australia and the United States (California), and other 
causes which need not be mentioned here. At the same time 
the average prices of grain fell by more than 16% during 
this period, with the exception of the poor agricultural years 
from 1854 to 1856. The tenant capitalists shouted for a re- 
duction of their tents. They succeeded in single cases. But 
on the whole they failed to get what they wanted. They 



Preliminaries. 72)7 

sought refuge in a reduction of the cost of production, among 
other things by introducing steam engines and new machin- 
ery in abundance, which partly replaced horses and crowded 
them out of the business, but partly also created an artificial 
overpopulation by throwing agricultural laborers out of work 
and thereby causing a fall in wages. And this took place in 
spite of the general relative decrease of the agricultural pop- 
ulation during that dec'ade, compared to the growth of the 
total population, and in spite of the absolute decrease of the 
agricultural population in some purely agricultural dis- 
tricts.^^"* In the same way Fawcett, then professor of polit- 
ical economy at Cambridge, who died in 1884 as Postmaster 
General, said at the Social Science Congress, October 12, 
1865 : " The agricultural laborers began to emigrate and 
the tenants began to complain, that they would not be able 
to pay such high rents as they had been accustomed to pay, 
because labor became dearer in consequence of emigration." 
Here, then, the high ground-rent is directly identified with 
low wages. And so far as the level of the prices of land is 
determined by this circumstance increasing the rent, a rise 
in the value of the land is identical with a depreciation of 
labor, a high price of land with a low price of labor. 

The same is true of France. " The price of rent rises, be- 
cause the prices of bread, wine, meat, vegetables and fruit 
rise on the one side, while on the other the price of labor 
remains unchanged. If the older people compare the bills 
of their fathers, taking us back about 100 years, they will 
find that the price of one day's labor was then the same in 
rural France as it is now. The price of meat has trebled 
since them. . . . Who is the victim of this revolution ? 
Is it the rich, who is the proprietor of the estate, or the poor 
who works it ? . . . The raising of the prices of rent is 
the proof of a national disaster." (Du Mecanisme de la 
Societe en France et en Angleierre. Par M. Rubichon, Sec- 
ond edition, Paris, 1837, p. 101.) 

We now give some illustrations of rent representing deduc- 

12* John C. Morton, The Forces Used in Agriculture. Lecture in the London 
Society of Arts, 1860, based upon authentic documents, collected by about 100 
tenants from 12 Scotch and 35 English counties. 

2U 



738 Capitalist Production. 

tions either from the average profit or from the average wages. 

The above quoted Morton, real estate agent and agricultural 
engineer, says that the observation has been made in many 
localities that the rent for large estates is smaller than for 
small ones, because " competition for the latter is generally 
greater than for the former, and because small tenants, who 
are rarely able to take up any other business but farming, are 
frequently willing to pay a rent, which they themselves know 
to be too high, pressed by the want of finding some other busi- 
ness." (John C. Morton^ The Resources of Estates. Lon- 
don, 1858, p. 116.) 

However, he is of the opinion that this difference is gradu- 
ally disappearing in England, and he attributes this largely 
to the emigration of the class of small tenants. The same 
Morton gives an illustration, in which evidently the wages 
of the tenant himself, and still more surely of the laborers, 
suffer a deduction for ground-rent. This takes place in the 
case of estates of 70 to 80 acres, who cannot keep a two-horse 
plow. " Unless the tenant works as diligently with his O'um 
hands as any laborer, he cannot make out on his lease. If 
he leaves the execution of the work to his men and confines 
himself to superintending them, he will most likely find very 
quickly that he is unable to pay his rent." (L. c, p. 118.) 
Morton concludes, therefore, that unless the tenants of a cer- 
tain locality are very poor, the leaseholds should not be 
smaller than YO acres, so that the tenants may keep two or 
three horses. 

Extraordinary wisdom of Monsieur Leonce de Lavergne, 
Memhre de VInstitut et de la Societe Centrale d' Agriculture. 
In his Economie Rurale de V Angleterre (quoted from the 
English translation, London, 1855), he makes the following 
comparison of the annual advantages from cattle, that work 
in France but not in England, where they are replaced by 
horses (p. 42) : 

FRANCE ENGLAND 

Milk 4 million p.st. Milk 16 million p.st. 

Meat 10 million p.st. Meat 20 million p.st. 

Labor .... 8 million p.st. Labor 

28 million p.st. 36 million p.st. 



Preliminaries. 739 

But the higher amount for England is obtained here, ac- 
cording to his own statement, because milk is twice as dear 
in England than in France, while he counts the same prices 
for meat in both countries (p. 35) ; therefore the English 
milk product reduces itself to 8 million pounds sterling, and 
the total product to 28 million pounds sterling, the same as in 
Erance. It is indeed a strong dose, that Mr. Lavergne lumps 
the quantities and price differences together in his calcula- 
tion, when England produces certain articles more expensively 
than Erance, so that this appears as an advantage of English 
agriculture, whereas it signifies at best only a higher profit 
for tenants and landlords. 

That Mr. Lavergne is not only familiar with the advan- 
tages of English agriculture, but also believes in the prejudices 
of the English tenants and landlords, is proved by him on page 
48 : " One great disadvantage is generally connected with 
grain plants . . . they exhaust the soil that bears them." 
Mr. Lavergne believes not only that other plants do not do 
so, but he also believes that leguminous crops and root crops 
enrich the soil : " Leguminous plants draw the principal 
elements of their growth out of the air^, while they give 
back to the soil more than they take from it; therefore they 
help both directly and indirectly through their return in the 
shape of animal manure to make good in a double way the 
damage caused by grain crops and other exliausting crops ; 
hence it is a matter of principle that they should at least al- 
ternate with such crops; in this consists the ISTorfollc rota- 
tion." (Pages 50 and 51.) 

'No wonder that Mr. Lavergne, who believes these fairy 
tales of the English rural mind, also believes that the wages 
of the English farm laborers have lost their abnormality sinco 
the repeal of the com tax. See what we have said on this 
point in another place, Volume I, chapter XXV, 5c, pages 
739 to 766. But let us also listen to Mr. John Bright's 
speech in Birmingham, December 14, 1865. After mention- 
ing the 5 million families that are not represented in Parlia- 
ment, he continues : " Among these are one million, or 
rather more than one million in the United Kingdom, who 



740 Capitalist Production. 

are put down on the luckless list of paupers. Then there 
is still another million, who are holding themselves just above 
pauperism, but who are continually in danger of likewise 
becoming paupers. Their condition and prospects are not 
any better. Now take a look at the ignorant lower strata 
of this portion of society. Consider their outcast condition, 
their poverty, their complete hopelessness. Even in the 
United States, even in the southern states during the reign 
of slavery, every negro looked forward to some jubilee year. 
But these people, this mass of the lowest strata of our coun- 
try, I am here to express it, have neither the faith in any im- 
provement nor even a longing for it. Did you read the other 
day that item about John Cross, a farm laborer of Dorset- 
shire ? He worked six days in the week, had an excellent 
character from his employer, for whom he had worked 24 
years for a weekly wage of 8 sh. John Cross had to keep a 
family of seven children in his hut out of this wage. In 
order to warm his sickly wife and her suckling babe, he took, 
or legally speaking he stole, a wooden hurdle worth six pence. 
For this crime he was sentenced to 14 or 20 days' imprison- 
ment by the justices of the peace. I can tell you that many 
thousands of cases like that of John Cross may be found in 
the whole country, and particularly in the South, and that 
their condition is such, that so far the most sincere investiga- 
tor has not been able to solve the secret, how they keep body 
and soul together. And now throw your glances over the 
whole country and look at those 5 million families and the 
desperate condition of this stratum of them. Can we not 
say truly that the mass of the nation excluded from the suf- 
frage toils and toils again and knows almost no rest? Com- 
pare them with the ruling class — but if I do that I shall be 
accused of communism . . . but compare this great toil- 
ing and suffrageless nation with that part which may be re- 
garded as the ruling class. Look at their wealth, their showi • 
ness, their luxury. Look at their weariness — for there is a 
weariness also among them, but it is the weariness of satiety 
■ — and see how they hasten from place to place, as though it 



Preliminaries. 741 

were only a question of discovering new pleasures." (Moriv- 
ing Star, December 15, 1865.) 

We will show hereafter, in what manner surplus-labor, and 
consequently surplus-products, are confounded with ground- 
rent, which is, at least under the capitalist mode of produc- 
tion, qualitatively and quantitatively a specifically determined 
part of the surplus-product. The natural basis of surplus- 
labor in general, that is a natural condition without which 
such labor cannot be performed, is that nature must supply, 
either in animal or vegetable products of the soil or in fish- 
eries, etc., the necessary means of subsistence by an expendi- 
ture of labor which does not consume the entire working day. 
This natural productivity of agricultural labor (which im- 
plies here the labor of gathering, hunting, fishing, cattle rais- 
ing) is the basis of all surplus-labor ; so is all labor primarily 
and originally directed toward the appropriation and pro- 
duction of food. (The animal supplies at the same time 
skins for warmth in colder climates ; also cave dwellers, etc. ) 

The same confusion between surplus-product and ground- 
rent, differently expressed, is shown by Mr. Dove. Origi- 
nally agricultural and industrial labor are not separated. The 
second joins into the first. The surplus-labor and the surplus- 
product of the farming tribe, the house commune or family, 
comprise both agricultural and industrial labor. Both go 
hand in hand. Hunting, fishing, agriculture are impossible 
without suitable tools. Weaving, spinning, etc., were first 
carried on as side occupations to farming. 

We have shown previously, that in the same way in which 
the labor of tlie individual workman may be separated into 
necessary and surplus-labor, the aggTegate labor of the work- 
ing class may be divided so that that portion, which produces 
the total means of subsistence for the working class (includ- 
ing the means of production required for this purpose) per- 
forms the necessary labor for the whole society. The labor 
performed by all the remainder of the working class may then 
be regarded as surplus-labor. But the necessary includes by 
no means only agricultural labor, but also that labor which 



742 Capitalist Production. 

produces all other products that necessarily pass into the aver- 
age consumption of the laborer. Socially speaking, some per- 
form only necessary, others only surplus-labor, and vice versa. 
It is but a division of labor between them. It is the same 
with the division of labor between agricultural and industrial 
laborers in general. The purely industrial character of labor 
on the one side is offset by the purely agricultural one on the 
other. This purely agricultural labor is by no means nat- 
ural, but is rather a product, and a very modern one at that, 
which has not yet been acquired everywhere, of social devel- 
opment, and it corresponds to a very definite stage of devel- 
opment. Just as a portion of the agricultural labor is ma- 
terialised in products, which either minister only to luxury or 
serve as raw materials in industry, but do not serve as food, 
particularly not as food for the masses, so a portion of the 
industrial labor is materialised in products, which serve as 
necessary means of consumption of both the agricultural and 
industrial laborers. It is a mistake to consider this indus- 
trial labor, from a social point of view, as surplus-labor. It 
is in part as much necessary labor as the necessary portion of 
the agricultural labor. It is likewise but a separated form 
of a part of industrial labor which was formerly naturally 
connected with agricultural labor, it is a necessary and mutual 
supplement to the purely agricultural labor, which is now 
separated from it. (From a purely material point of view 
500 mechanical weavers may produce surplus-fabrics to a far 
greater degTee, that is, more than is required for their own 
clothing.) 

It should finally be remembered in the study of the various 
forms which appear as ground-rent, that is, of the lease money 
paid under the name of gi"ound-rent to the landlord for the 
use of the land for the purposes of production or consump- 
tion, that the price of things, which have in themselves no 
value, not being the products of labor, such as the land, or 
which at least cannot be reproduced by labor, such as antiqui- 
ties, works of art of certain masters, etc., may be determined 
by many accidental combinations. In order to sell a thing, 



Preliminaries. 743 

nothing more is required than that it can be monopolised and 
alienated. 



There are three great errors, which should be avoided in 
the study of ground-rent, and which obscure its analysis. 

1) Confusion of the various forms of rent, which corre- 
spond to different stages of development of the process of so- 
cial production. 

■Whatever may be the specific form of rent, all types of it 
have this in common that the appropriation of rent is that 
economic form, in which property in land realises itself, and 
that ground-rent on its part is conditioned on the existence 
of private property in land, the ownership of certain portions 
of the globe by certain individuals. The owner may be the 
individual representing the community, as in Asia, Egypt, 
etc., or this private ownership in land may be merely acces- 
sory to the ownership of the persons of the direct producers 
by some individuals, as under the slave or serf system, or it 
niay be a purely private ownership of nature by nonproduc- 
ers, a mere title to land, or finally it may be a relation to the 
soil which, as in the case of colonists and small peasants own- 
ing land, seems included under a system of isolated and un- 
social labor in the appropriation and production of the prod- 
ucts of certain pieces of land by the direct producers. 

This common element in the various forms of rent, namely 
that of being the economic realisation of property in land, a 
legal fiction by grace of which certain individuals have an ex- 
clusive right to certain pieces of the globe, misleads into over- 
looking the differences. 

2) All ground^rent is surplus-^'alue, the product of surplus- 
labor. Jm its undeveloped form, as natural rent (rent in 
kind), it is as yet directly the surplus-product itself. This 
gives rise to the mistaken idea that the rent corresponding 
to the capitalist mode of production is explained by merely 
explaining the general prerequisites of surplus-value and 
profit, whereas this ground-rent is always a surplus over and 



744 Capitalist Production. 

above profit. It is a peculiar and specific portion of surplus- 
value, over and above that portion of the value of commodi- 
ties, whicb is known as profit and consists itself of surplus- 
value (surplus-labor). The general conditions for the exist- 
ence of surplus-value and profit are : The direct producers 
must work beyond the time necessary for the reproduction of 
their own labor-power. They must perform surplus labor in 
general. This is the subjective condition. The objective con- 
dition is that they must be able to perform surplus-labor. The 
natural conditions must be such that a part of their available 
labor time sufiices for their reproduction and selfmaintenance 
as producers, that the production of their necessary means of 
subsistence shall not consume their whole labor-power. The 
fertility of nature forms a limit here, a starting point, a basis. 
The development of the social productivity of their labor 
forms the other limit. Still more strictly speaking, since the 
production of means of subsistence is the very first condition 
of their existence and of all production, the labor used in tliis 
production, that is the agricultural labor in the widest eco- 
nomic meaning, must be productive enough, so that it will not 
absorb the entire available labor time in the production of 
means of subsistence for the direct producers. Agricultural 
surplus-labor and an agricultural surplus-product must be pos- 
sible. More widely applied, it means that the total agi'icul- 
tural labor, both necessary and surplus-labor, of a part of so- 
ciety suffices to produce the necessary subsistence for the 
whole society, including the laborers who are not agricultural. 
It means that this great division of labor between farmers 
and industrials must be possible, also that between farmers 
producing subsistence and farmers producing raw materials. 
Although the labor of the producers of subsistence consists 
of necessary and surplus-labor, so far as their owhq point of 
view goes, it represents from the social standpoint only the 
labor necessary to produce the social subsistence. The same 
takes place in the case of division of labor within society as 
a whole, as distinguished from division of labor in the indi- 
vidual workshop. It is the labor necessary for the produc- 
tion of particular articles, for the satisfaction of some partic- 



Preliminaries. ' 745 

ular need of society. If this division is proportional, then 
the products of the various groups are sold at their values (at 
a later stage of development at their prices of production), 
or at prices which are modifications of their values or prices 
of production due to general laws. It is indeed the law of 
value enforcing itself, not with reference to individual com- 
modities or articles, but to the total products of the particular 
social spheres of production made independent by division 
of labor. Every commodity must contain the necessary 
quantity of labor, and at the same time only the proportional 
quantity of the total social labor time must have been spent 
on the various groups. For the use-value of things remains 
a prerequisite. The use-value of the individual commodities 
depends on the particular need which each satisfies. But 
the use-value of the social mass of products depends on the 
extent to which it satisfies in quantity a definite social need 
for every particular kind of product in an adequate manner, 
so that the labor is proportionately distributed among the dif- 
ferent spheres in keeping with these social needs, which are 
definite in quantity. (This point is to be noted in the dis- 
tribution of capital to the various spheres of production.) 
The social need, that is the use-value on a social scale, ap- 
pears here as a determining factor for the amount of social 
labor which is to be supplied by the various particular spheres. 
But it is only the same law, which showed itself in the indi- 
vidual commodity, namely that its use-value is the basis of 
its exchange-value and thus of its surplus-value. This point 
has any bearing upon the proportion between necessary and 
surplus-labor only in so far as a violation of this proportion 
makes it impossible to realise the value of the commodities 
and the surplus-value contained in it. Tor instance, take 
it that proportionally too much cotton goods have been pro- 
duced, although only the labor-time necessary for this total 
product under the prevailing conditions is realised in it. 
But too much social labor has been expended in this particu- 
lar line, in other words, a portion of this product is useless. 
The whole of it is therefore sold only as though it had been 
produced in the necessary proportion. This quantitative 



746 Capitalist Production. 

limit of the quota of social labor available for the various 
particular spheres is but a v^^ider expression of the law of 
value, although the necessary labor time assumes a different 
meaning here. Only just so much of it is required for the 
satisfaction of the social needs. The limitation is here due 
to the use-value. Society can use only so much of its total 
labor for this particular kind of products under the prevail- 
ing conditions of production. But the subjective and ob- 
jective conditions of surplus-labor and surplus-value in general 
have nothing to do with the peculiar form of either the profit 
or the rent. These conditions apply to surplus-value as such, 
no matter what special form it may assume. Hence they 
do not explain ground-rent. 

3) It is precisely the self-expansion of private property, 
the development of ground-rent, which reveals the characteris- 
tic peculiarity, that its amount is by no means determined by 
the actions of its recipient, but by the independent develop- 
ment of social labor, in which he does not take part. It may 
easily happen, therefore, that something is regarded as a pe- 
culiarity of rent (and of the products of agTiculture in gen- 
eral), which is really a common feature of all lines of 
production and all their products on the basis of the produc- 
tion of commodities, or, more strictly speaking, of capitalist 
production. 

The amount of ground-rent (and with it the value of the 
soil) develops with the progress of social advance as a result 
of the total labor of society. On the one hand this leads to a 
gTowth of the market and of the demand for products of the 
soil, on the other it stimulates the demand for the land itself, 
which is a prerequisite of competitive production in all lines 
of business, even in those which are not agricultural. Speak- 
ing strictly of real-ground rent, this rent, and with it the value 
of the soil, develops with the market for the products of 
the soil, and thus with the increase of the other than 
agricultural population, with its needs and demand for either 
means of subsistence or raw materials. It is the nature of 
capitalist production to reduce the agricultural population 
continually as compared to the non-agricultural, because in 



Preliminaries. 747 

industry (strictly speaking) the increase of the constant cap- 
ital compared to the variable capital goes hand in hand with 
an absolute increase, though relative decrease, of the vari- 
able capital; whereas in agriculture the variable capital re- 
quired for the exploitation of a certain piece of land de- 
creases absolutely and cannot increase, unless new land is 
taken into cultivation, which implies a still greater previous 
growth of the non-agricultural population. 

In fact we are not dealing here with a characteristic 
peculiarity of agriculture and its products. On the con- 
trary, the same applies to all other lines of production and 
products on the basis of a prodution of commodities and of 
its absolute form, capitalist production. 

These products are commodities, use-values, which have an 
exchange-value which can be realised, converted into money, 
only to the extent that other commodities form an equivalent 
for them, that other products face them as commodities and 
values. They have an exchange-value to the extent that they 
are not produced as immediate means of subsistence for the 
producers themselves, but as commodities, as products which 
become use-values only by their conversion into exchange- 
values (money), by being gotten rid of. The market for 
these commodities develops through the social division of 
labor; the separation of the productive labor into various 
departments transforms their respective products mutually 
into commodities, into mutual equivalents, makes them serve 
mutually as markets. This is in no way peculiar to agri- 
cultural products. 

Rent can develop as money-rent only on the basis of a pro- 
duction of commodities, more strictly of capitalist produc- 
tion, and it so develops in proportion as the agricultural pro- 
duction becomes a production of commodities. This is the 
same proportion in which other than agricultural lines of 
production develop independently of agriculture, for to that 
extent does the agricultural product become a commodity, 
an exchange-value, a value. To the same extent that the 
production of commodities develops as a capitalist produc- 
tion, and as a production of value, does the production of 



748 Capitalist Production. 

surplus-value and surplus-products proceed. But to the same 
extent that this continues does property in land acquire the 
faculty of capturing an ever increasing portion of this sur- 
plus-value by means of its land monopoly. Thereby it 
raises its rent and the price of the land itself. The capi- 
talist performs at least an active function himself in the 
development of surplus-value and surplus-products. But the 
land owner has but to capture his growing share in the sur- 
plus-product and the surplus-value created without his as- 
sistance. It is this which is the characteristic peculiarity of 
his position, and not the fact tliat the value of the products 
of the soil and thus of the land increases in proportion as 
the market for them expands, the demand grows and with it 
the world of commodities which are not agricultural prod- 
ucts, the mass of producers and products outside of agricul- 
ture. But as this is done without the assistance of the land- 
owner, it appears as something specifically his own, that 
measures of value, measures of surplus-value, and the con- 
version of a portion of surplus-value into ground-rent should 
depend upon the process of social production, on the develop- 
ment of the production of the commodities in general. For 
this reason a man like Dove wants to develop rent out of this 
element. He says that rent does not depend upon the mass of 
agricultural products, but upon their value; but this depends 
upon the mass and productivity of the non-agricultural popu- 
lation. But it is also true of all other products that they can- 
not develop the character of commodities, unless the mass, the 
variety and the succession of other commodities form equiva- 
lents for them. We have shown this previously in the dis- 
cussion of the general nature of value. On the one- hand 
the exchangeability of a certain product depends altogether 
on the multiplicity of commodities existing outside of it. On 
the other hand this circumstance determines in particular to 
what extent this product shall be put out as a commodity. 

No producer, whether an industrial or farmer, considered 
by himself alone, produces value or commodities. His prod- 
uct becomes a commodity only in definite social interrela- 
tions. It becomes a commodity, in the first place, to the 



Preliminaries. 749 

extent that it represents social labor, so that the individual 
producer's labor counts as a part of the general social labor. 
And in the second place this social character of his labor 
appears impressed upon his product through its pecuniary 
character and through its general exchangeability determined 
by its price. 

Instead of explaining rent, such vagaries confine them- 
selves to explaining merely surplus-value in general, or, still 
more absurdly, surplus-products in general, and on the other 
hand they make the mistake of ascribing a character, which 
belongs to all products in their capacity as commodities, to 
agricultural products exclusively. This is still more vulgarised 
by those who pass from a general analysis of value over to 
the realisation of a certain commodity's value. Every com- 
modity can realise its value only in the process of circu- 
lation, and whether it realises its value, and to what extent 
it does so, depends on the prevailing market conditions. 

It is not a peculiarity of ground-rent, then, that the prod- 
ucts of agriculture develop into values and as values, that 
they face other commodities as commodities, and that prod- 
ucts not agricultural face them as commodities, or that they 
develop as specific expressions of social labor. The pecul- 
iarity of gTound-rent is rather that in proportion as the 
conditions develop, in which agricultural products develop as 
commodities (values), and in which they can realise their 
values, so does also property in land develop the power to 
appropriate an increasing portion of these values, which were 
created without its assistance, and so does an increasing por- 
tion of the sm?;glus-yalue assume the form of ground-rent. 



CHAPTEK XXXVIII. 

DIFFERENTIAL RENT. GENERAL REMARKS. 

In the analysis of ground-rent we shall start from the' 
assumption, that products paying such a rent, that is, prod- 
ucts a portion of whose surplus-value and general price re- 



750 Capitalist Production. 

solves itself into ground-rent, are sold at their prices of pro- 
duction, like all other commodities. It suffices for our pur- 
poses to confine ourselves to products of agriculture and mining. 
In other words, their selling prices are made up of the 
elements of their cost (the value of the consumed constant 
and variable capital) plus a profit, which is determined by 
the average rate of profit and calculated on the total capital 
advanced, whether consumed or not consumed. We assume, 
then, that the average selling prices of these products are 
equal to their prices of production. The question is now, 
how can a ground-rent develop under these conditions, how 
can a portion of the profit become converted into ground-rent, 
so that a portion of the prices of the commodities falls into 
the hands of the landlord. 

In order to show the general character of this form of 
ground-rent, we assume that most of the factories of a certain 
country are driven by steam engines, while a certain smaller 
number of them are driven by natural waterfalls. Let us 
further assume that the price of production in those in- 
dustries amounts to 115 for a quantity of commodities which 
have consumed a capital of 100. The 15% of profit are 
calculated, not merely on the consumed capital of 100, but 
on the total capital invested in the production of this value 
in the commodities. We have previously sho^vn that this 
price of production is not determined by the individual cost- 
price of every single producing industrial, but by the cost- 
price required on an average for the commodity under the 
average conditions of capital in the entire sphere of pro- 
duction. It is, in fact, the market price of production, as 
distinguished from its oscillations. For it is in the form of 
the market price, and in a wider sense of the regulating 
market price, or market price of production, that the nature 
of value asserts itself in commodities. It becomes evident, 
in this way, that it is not determined by the labor time nec- 
essary in the case of any individual producer for the pro- 
duction of a certain quantity of commodities, or of some in- 
dividual commodity, but by the socially necessary labor time. 
This is that quantity of labor time, which is necessary for 



Differential Rent. General Remarks. y^i 

the production of the socially required total quantity of com- 
modities of any kind on the market under the existing average 
conditions of social production. 

As definite figures are immaterial in this case, we shall 
furthermore assume that the cost price in the factories driven 
by water power is only 90 instead of 100. Since the regu- 
lating market price of production of this quantity of com- 
modities is 115, with a profit of 15%, the factories driven 
by water power will also sell their commodities at 115, the 
average price regulating the market price. Their profit 
would then be 25 instead of 15 ; the regulating market price 
of production would allow them a surplus-profit of 10%, not 
because they sell their commodities above the price of pro- 
duction, but because they sell them at the price of production, 
because their commodities are produced, or their capital ex- 
panded, under exceptionally favorable conditions, under con- 
ditions, which are above the average prevailing in this sphere. 

Two things become evident at once. 

1 ) The surplus-profit of the producers, who use the natural 
waterfall as motive power, is in the same class with all 
surplus-profit (and we have already analysed this category 
when discussing the prices of production), which is not the 
result of mere transactions in the sphere of circulation, of 
mere fluctuations of market prices. This surplus-profit, then, 
is likewise equal to the difference between the individual 
price of production of these favored producers and the general 
social price of production regulating the market in this entire 
sphere. This difference is equal to the excess of the general 
price of production of the commodities over their individual 
price of production. The two regulating limits of this excess 
are on the one hand the individual cost price, and thus the 
individual price of production, on the other hand the general 
price of production. The value of the commodities produced 
with water power is smaller, because a smaller quantity of 
labor is required for their production, namely less labor 
materialised in the constant capital. The labor here em- 
ployed is more productive, its individual power of produc- 
tion is greater than that employed in the majority of the 



752 Capitalist Production. 

factories of the same kind. Its greater productive power 
is shown in the fact that it requires a smaller quantity of 
constant capital, a smaller quantity of materialised labor, 
tlian the others. It also requires less living labor, because 
'the water wheel need not be heated. This greater individual 
power of production of the employed labor reduces the value, 
and at the same time the cost price and price of production 
of the commodity. Tor the individual industrial capitalist 
this expresses itself in a lower cost price of his commodities. 
He has to pay for less materialised labor, and less wages 
for less labor-power employed. Since the cost price of his 
commodities is smaller, his individual price of production is 
also smaller. His cost price is 90 instead of 100. His in- 
dividual price of production would therefore be only 103^- 
instead of 115 (100: 115 = 90: 1031). The difference 
between his individual price of production and the general 
one is limited by the difference between his individual cost 
price and the general one. This is one of the magnitudes 
which form the limits of his surplus-product. The other is 
the magnitude of the general price of production, into which 
the average rate of profit enters as a regulating factor. If 
coal should become cheaper, the difference between his in- 
dividual cost-price and the general cost-price would decrease, 
and with it his surplus-profit. If he should be compelled 
to sell his commodities at their individual value, or at the 
price of production determined by its individual value, then 
the difference would disappear. It is on the one side a result 
of the fact that the commodities are sold at their general 
market-price, the price brought about by the equalisation of 
individual prices through competition, on the other side a 
result of the fact that the greater individual productivity of 
the laborers employed by him does not benefit the laborers, 
but their employer, as does all productivity of labor. This 
productivity represents itself as a faculty of capital. 

Since the level of the general price of production is one 
of the limits of the surplus-product, the level of the average 
rate of pi'ofit being one of its factors, it can have no other 
source but the difference between the o-eneral and the indi- 



Differential Rent. General Remarks. 753 

vidual price of production, and consequentlj the diilerence 
between the general and the individual rate of profit. An 
excess of this difference would imply the sale of products above 
the price of production regulated by the market, not at this 
price. 

2) So far as the surplus profit of the manufacturer using 
natural water power instead of steam for motive power does 
not differ in any way from any other surplus profit. All 
normal surplus profit, that is all surplus profit not due 
through accidental sales or fluctuations of the market price, 
is determined by the difference between the individual price 
of production of the commodities of these particular capitals 
and the general price of production, which regulates in a 
general way the market prices of the commodities produced 
by the capitals of this sphere of production, or the market 
prices of the commodities of the total capital invested in this 
sphere of production. 

But now we come to the difference. 

To what circumstance does the industrial capitalist in the 
present case owe his surplus-profit, the surplus resulting for 
him personally from the price of production regulated by the 
average rate of profit ? 

He owes it in the last resort to a natural power, the 
motive power of water, which is found ready at hand in 
nature and which is not itself a product of labor like coal, 
which transforms water into steam. The water has no value, 
it need not be paid by an equivalent, it costs nothing. It 
is a natural agency of production, which is not produced 
by labor. 

But this is not all. The manufacturer who works with 
a steam engine also employs natural powers, which cost him 
nothing and yet make his labor more productive and, to the 
extent that they cheapen the manufacture of the means of 
subsistence required for the laborers, increase the surplus- 
value and with it the profit. These natural powers are quite 
as much monopolised by capital as the natural powers of 
social labor arising from co-operation, division, etc. The 

manufacturer pays for the coal, but not for the faculty of 

gv 



754 Capitalist Production. 

the water to alter its aggregate state, of passing over into 
steam, not for the elasticity of the steam, etc. The monopo- 
lisation of natural powers, that is of the increased productivity 
of labor due to them, is common to all capital working with 
steam engines. It may increase that portion of the product 
of labor which represents surplus-value as against that por- 
tion which is converted into wages. To the extent that it 
does this, it raises the general rate of profit, but it does not 
make any surplus-prbfit, for this consists of the excess of 
the individual profit over the average profit. The fact that 
the aj)plication of a natural power, of a waterfall, creates 
a surplus-profit in this case, cannot therefore be due solely 
to the circumstance that the increased productivity of labor 
is here due to a natural force. There must be still other mod- 
ifying circumstances. 

Look at the reverse side. The mere application of natural 
powers to industry may influence the level of the general 
rate of profit, because it affects the quantity of labor necessary 
to produce the means of subsistence. But in itself it does 
not create any deviations from the general rate of profit, 
and this is the point in which we are interested here. 
Furthermore, the surj)lus-profit, which some individual capi- 
tal may ordinarily realise in its particular sphere of produc- 
tion — for the deviations of the rates of profits in the various 
spheres of production are continually balanced by compe- 
tition into an average rate — are due, aside from accidental 
deviations, to a reduction of the cost-price, of the cost of pro- 
duction. This reduction arises either from the fact that a 
capital is used in greater than ordinary quantities, so that 
the dead expenses of the production are reduced, while the 
general causes increasing the productivity of labor, such as 
co-operation, division, etc., can exert themselves with a higher 
degree of intensity, their field of expression being larger. 
Or it may arise from the fact that, aside from the greater 
volume of the invested capital, better methods of labor, new 
inventions, improved machinery, chemical secrets in manu- 
facture, etc., in short new and improved means of j) reduc- 
tion and methods are used, which are above the average. The 



Differential Rent. General Remarks. 755 

reduction of tlie cost price and tlie surplus profit arising 
from it arise here from the manner, in which the self-expand- 
ing capital is invested. They arise either from the circum- 
stance tliat it is concentrated in one hand in extraordinarily 
large masses (a circumstance which is neutralised when cap- 
itals of the same size become the average), or from the cir- 
cumstance that a capital of a certain size expands itself under 
exceptionally favorable circumstances (a circumstance which 
is neutralised as soon as the exceptional method of produc- 
tion becomes general or is superseded by a still more de- 
veloped one). 

The cause of the surplus profit, then, arises here from the 
capital itself (which includes the labor set in motion by it) ; 
it is either due to the g-reater size of the capital employed, 
or to its more improved application; and there is no^particu- 
lar reason why all the capital in the same sphere of pro- 
duction should not be invested in the same way. In fact, 
the competition between the capitals tends to neutralise their 
differences more and more. The determination of value by 
the socially necessary labor time asserts itself by the cheapen- 
ing of commodities and the necessity of making commodities 
under the same favorable conditions. But it is different 
with the surplus profit of the industrial capitalist who uses 
water power. The increased productive power of his labor 
is not due either to his capital or his labor, nor to the mere 
application of some natural force separate from capital and 
labor, but incoi^orated in the capital. It arises from the 
greater natural power of production of labor in conjunction 
with some other natural power, which natural power is not 
at the command of all capitals in this sphere, whereas such 
a thing as the elasticity of steam is. The application of 
this other natural power does not follow as a selfunderstood 
matter, whenever capital is invested in this sphere. It is a 
monopolised natural power, which, like a water fall, is only 
at the command of those who can avail themselves of particu- 
lar pieces of the globe and its opportunities. It is not 
within the power of capital to call to life this natural premise 
for a greater productivity of labor, whereas any capital may 



756 Capitalist Production. 

transform water into steam. Water power is found only 
locally in nature, and wherever it does not exist, it cannot 
be created by any investment of capital. It is not dependent 
upon products which labor can secure, such as machines, 
coal, etc. It is dependent upon definite natural conditions 
of definite portions of the globe. That section of industrial 
capitalists who own waterfalls excludes the other section who 
do not own any from the application of this power, because 
the land, and particularly land supplied with water power, 
is limited. Of course this does not prevent the quantity of 
water power available for industrial purposes from being 
increased, even if the number of natural waterfalls in a 
certain country is limited. Water power may be artificially 
diverted, in order to exploit its motive force fully. Under 
certain conditions a water wheel may be inproved so as to 
use the highest possible amount of water power; in places 
where the ordinary wheel is not suitable for supplying water, 
turbines may be used, etc. The possession of this natural 
power forms a monopoly in the hand of its owner, it is a 
premise for the increase of the productivity of the invested 
capital, which cannot be created by the process of produc- 
tion of the capital itself. ^^^ This natural power, which can 
be monopolised in this way, is always attached to the soil. 
Such a natural power does not belong to the general condi- 
tions of that particular sphere of production, and not to those 
conditions, which may be made general. 

ISTow let us assume that the waterfalls with the land on 
which they are found are held in the hands of persons, who 
are considered the owners of these portions of the globe, who 
are land owners. These owners may exclude others and pre- 
vent them from investing capital in the waterfalls or using 
waterfalls by means of capital. They can permit such a 
use or forbid it. The capital cannot create a waterfall out 
of itself. Therefore the surplus profit, which arises from 
this employment of waterfall, is not due to capital, but to 
the harnessing of a natural power, which can be monopolised 
and has been monopolised, by capital. Under these eircum- 

^'^As to the extra profit, see the "Inquiry" (against Malthus). 



"Differential Rent. General Remarks. 757 

stances the surplus-profit is transformed into ground-rent, 
that is, it falls into the hands of the owner of the waterfall. 
If the industrial capitalist pays to the owner of the water- 
fall 10 pounds sterling annually, then his profit is 15 pounds 
sterling, that is 15% on the 100 which then make up his 
cost of production ; and he is just as well off, or possibly bet- 
ter, as all other capitalists of his sphere of production, who 
work with steam. It would not matter, if this capitalist 
should be the owner of the waterfall. He would in that 
case pocket the surplus profit of 10 pounds in his capacity 
as a landowner, not in his capacity as an industrial capitalist, 
just because this surplus is not due to his capital as such, 
but to a limited natural power separate from his capital, 
over which he has command, because he has a monopoly of it. 
And so it is converted into ground-rent. 

1) It is evident that this is always a differential rent, for 
it does not enter as a determining factor into the average 
price of production of commodities, but rather is based on 
it. It always arises from the difference between the in- 
dividual price of jDroduction of the individual capital having 
command over monopoly of natural power and the general 
price of production of the total capital invested in that par- 
ticular sphere of production. 

2) This ground-rent does not arise from the absolute in- 
crease of the productivity of the employed capital, or of the 
labor apj)ropriated by it, since this can only reduce the value of 
commodities; it is due to the greater relative fertility of 
definite individual capitals invested in a certain sphere of 
production, as compared with investments of capital, which 
are excluded from these exceptional and natural conditions 
favoring the productivity. For instance, if the use of steam 
should offer overwhelming advantages not attached to the use 
of water power, or tending to neutralise the benefits to be 
derived from water power, then, water power would not be 
used and could not produce any surplus profit, or ground- 
rent, even though coal has a value and water power has not. 

3) The natural power is not the source of the surplus 
profit, but only its natural basis, because this natural basis 



758 Capitalist Production. 

permits an increase in the productive power of labor. In 
the same way the use-value is the general bearer of the ex- 
change-value, but not its cause. If the same use-value could 
be created without labor, it would have no exchange-vakie, 
yet it would have the same useful effect as ever. On the 
other hand, nothing can have an exchange-value unless it has 
a use-value, unless it has this useful bearer of labor. Were 
it not for the fact that the different values are neutralised 
into prices of production, and the different individual prices 
of production into one average price of production regulating 
the market, the mere increase in the productivity of labor 
by the use of a waterfall would merely lower the price of the 
commodities produced with the waterfall, without adding 
anything to the share of profit contained in those com- 
modities. On the other hand, this increased productivity of 
labor would not be converted into surplus-value, were it not 
for tlie fact that capital appropriates the natural and social 
productivity of labor as though it were its own. 

4) The private ownership of the waterfall has nothing 
to do with the creation of that portion of the surplus-value 
(profit), and of the price of a commodity in general, which 
is produced by the help of the waterfall. This surplus profit 
would also exist, if private property did not prevail, for 
instance, if the land supplied with the waterfall were ap- 
propriated by the industrial capitalist as masterless booty. 
Hence private property in land does not create that portion 
of value, which is transformed into surplus profit, but it 
merely enables the landowner, who has possession of the 
waterfall, to coax this surplus profit out of the pocket of the 
industrial capitalist into his own. It is the cause, not of the 
creation of this surplus profit, but of its transformation into 
ground-rent, of the appropriation of this portion of the profit, 
or of the price of commodities, by the owner of the land 
or of the waterfall. 

5) It is evident that the price of the waterfall, that is 
the price which the owner of it would receive if he were to 
sell it to some other man, perhaps to the industrial capitalist, 
would not enter directly into the general price of production 



Differential Rent. General Remarks. 759 

of the commodities, although it would enter into the individ- 
ual cost-price of the industrial capitalist. For the rent 
arises here from the price of production of the commodities 
produced by steam machinery, and this price is regulated 
independently of the waterfall. Fu^'thermore, this price of 
the waterfall is an irrational expression, behind which a real 
economic relation is concerned. The waterfall, like the earth 
in general, and like any natural force, has no value, because 
it does not represent any materialised labor, and therefore 
it really has no price, which is normally but the expression 
of value in money. Where there is no value, it is obvious 
that it cannot be expressed in money. This price is merely 
capitalised rent. The ownership of land enables the land- 
owner to catch the difference between the individual profit 
and the average profit. The profit thus acquired, which is 
renewed every year, may be capitalised, and then it appears 
as the price of a natural power itself. If the surplus profit 
realised by the use of the waterfall amounts to 10 pounds 
sterling per year, and the average interest is 5%, then these 
10 pounds sterling annually represent the interest on a capi- 
tal of 200 pounds sterling; and this capitalisation of the 
annual. 10 pounds sterling, which the waterfall enables its 
owner to catch, appears then as the capital-value of the 
waterfall itself. That it is not the waterfall itself, which 
has a value, but that its price is a mere reflex of the ap- 
propriated surplus profit, which the use of the waterfall 
yields to the industrial capitalist, capitalistically calculated, 
becomes at once evident in the fact that the price of 200 
pounds sterling represents merely the product of a surplus 
profit of 10 pounds sterling for 20 years, whereas the same 
waterfall will enable its owner to catch these 10 pounds sterling 
every year for 30 years, or 100 years, or an indefinite num- 
ber of years, so long as circumstances remain the same. 
On the other hand, if some new method of production, which 
is not suitable for water power, should reduce the cost price 
of the commodities produced by steam machinery from 100 
to 90 pounds sterling, the surplus profit, and with it the 
rent, and with it the price of the waterfall, would disappear. 



760 Capitalist Production. 

IsFow that we have explained our general conception of 
differential rent, we will pass on to its consideration in agri- 
culture, strictly so-called. What applies to it will also apply- 
on the whole to mines. 



CHAPTEK XXXIX. 

THE FIEST FORM OF DIFFERENTIAL, RE.NT. 

(Differential Bent I.) 

RiCARDO is quite right when he writes the following sen- 
tences : 

" Rent is always the difference between the produce ob- 
tained by the employment of two equal quantities of capi- 
tal and labor" (Principles^ p. 59). [He means differential 
rent, for he assumes that no other rent but differential rent 
exists.] He should have added " On the same quantities 
of land," so far as ground-rent and not surplus profit in 
general is concerned. 

In other words, surplus profit, if normal and not due to 
accidental transactions in the process of circulation, is always 
produced as a difference between the products of two equal 
quantities of capital and labor. This surplus profit is trans- 
formed into ground rent, when two equal quantities of capital 
and labor are employed on equal quantities of land with un- 
equal results. However, it is by no means absolutely neces- 
sary that this surplus profit should arise from unequal results 
of equal quantities of invested capital. The various invest- 
ments may also employ unequal quantities of capital. Indeed, 
this is generally the case. But equal aliquot parts, for in- 
stance 100 pounds sterling of each, give unequal results; 
that is, their rates of profit are different. This is the general 
prerequisite for the existence of surplus profit in any sphere, 
where capital is invested. The second prerequisite is the 
transformation of this surplus profit into ground-rent (and 
of rent in general as distinguished from profit) ; it should 



First Form of Differential Rent. 761 

always be analysed, when, how, under what conditions this 
transformation takes place. 

Ricardo is also right in the following sentence, provided 
it is limited to differential rent : " Whatever diminishes the 
inequality in the produce obtained on the same or on new 
land, tends to lower rent; and whatever increases that in- 
equality, necessarily produces an opposite effect and tends 
to raise it." (P. 74.) 

However, among these causes are not merely the general 
ones (fertility and location), but also 1) the distribution 
of taxes, according to whether it works uniformly or not; it 
always has the latter effect, for instance in England, when 
it is not centralised and when the tax is levied on the land, 
not on the rent ; 2 ) the inequalities arising from the different 
development of agriculture in different parts of the country, 
since this line of industry, on account of its traditional char- 
acter, is more difficult to level than manufacture; 3) the 
inequality in the distribution of capital among the capitalist 
tenants. Since the capture of agriculture by the capitalist 
mode of production, the transformation of independently pro- 
ducing farmers into wage workers, is in fact the last conquest 
of this mode of production, these inequalities are gTeater 
here than in any other line of industry. 

After these preliminary remarks I will give a brief sum- 
mary of the peculiarities of my own analysis as distinguished 
from that of Kicardo, etc. 



We consider first the unequal results of equal quantities 
of capital, applied to different lands of equal area; or on lands 
with unequal areas, but calculated on the same aliquot parts 
of it. 

The two general causes of these unequal results independ- 
ent of capital, are 1) Fertility. (With reference to this 
first point the analysis should state, what is included in the 
natural fertility of lands, and what elements enter into it.) 
2) The location of the lands. This is a deciding factor in 



762 Capitalist Production. 

colonies, and in general determines the succession in which 
lands shall be taken under cultivation. Furthermore it is 
evident that these tv^o different causes of differential rent, 
fertility and location, may work in opposite directions. A 
certain soil may be very favorably located and yet be very poor 
in fertility, and vice versa. This circumstance is important, 
for it explains how it is that the work of opening the soil 
of a certain country to cultivation may equally well pro- 
ceed from the worse to tlie better soil, instead of vice versa. 
Finally it is clear that the progress of social production has 
on the one hand the general effect of leveling the differences 
arising from location as a cause of ground-rent, by creating 
local markets and improving locations by means of facil- 
ities for communication and transportation; and that, on 
the other hand, it increases the differences of the individual 
locations in a certain district by separating agriculture from 
manufacture and forming great centers of production on the 
one hand while relatively isolating the agricultural districts 
on the other hand. 

For the present, however, we leave this point, location, out 
of consideration and confine ourselves to natural fertility. 
Aside from climatic factors, etc., the difference in natural fer- 
tility is one of the chemical compositions of the top soil, that 
is of its different contents in plant nourishment. However, as- 
suming the chemical composition and natural fertility in this 
respect to be the same for two areas, the actual fertility 
will be different according to whether these elements of plant 
nourishment have a form, in which they may be more or 
less easily assimilated and immediately utilised for nourish- 
ing plants. Hence it will depend partly upon the chemical, 
partly upon the mechanical development of agriculture, to 
what extent the same natural fertility may be made avail- 
able in fields of the same natural fertility. Fertility, al- 
though an objective quality of the soil, always implies eco- 
nomic relations, a relation to the existing chemical and me- 
chanical development in agriculture, of course it changes 
with such a development. By dint of chemical applications 
(such as the use of certain liquid manures to stiff clay loam, 



First Form of Differential Rent. 763 

or burning of heavj clay soils) or of mechanical appliances 
(such as special plows for heavy soils) the obstacles may be 
removed, which made a soil of the same fertility as some 
other actually less fertile (drainage also belongs under this 
head). Or even the succession of soils in cultivation may be 
changed thereby, as was the case, for instance, with light 
sandy soil and heavy clay soil in a certain period of develop- 
ment of English agriculture. This shows once more that 
historically, in the succession of soils under cultivation, one 
may pass just as well from very fertile soils to less fertile 
ones as vice versa. The same may come to pass by any arti- 
ficially created improvement in the composition of the soil, 
or by a mere change in the methods of agriculture. Finally 
the same result may be brought about by a change in the 
succession of the predominant kinds of soil, owing to differ- 
ent conditions of the subsoil, as soon as it is likewise taken 
into cultivation and turned over into top layers. This is 
caused either by the employment of new methods of agri- 
culture (such as planting of stock feed), or any mechanical 
appliances, which either turn the subsoil into top layers, or 
mix it with the top soil, or cultivate the subsoil without 
throwing it up. 

All these influences upon the differential fertility of dif- 
ferent lands amount to the practical result that for the eco- 
nomic fertility the state of the productivity of labor, in this 
case the faculty of agriculture of making the natural fertility 
of the soil immediately available, a faculty which varies in dif- 
ferent periods of development, is as much an element in the 
so-called natural fertility of the soil as its chemical compo- 
sition and its other natural qualities. 

TVe assume, then, the existence of a certain stage of devel- 
opment of agriculture. We assume furthermore, that the 
predominant succession of soils is calculated with refer- 
ence to this stage of development, a thing which is, of course, 
always the case with simultaneous investments of capital on 
the different soils. Under such circumstances differential 
rent may form either in an ascending or a descending suc- 
cession, for although the succession is an established fact for 



764 



Capitalist Production. 



the totality of the actually cultivated lands, a movement of 
succession leading to this formation always preceded it. 

Let us assume the existence of four kinds of soil, A, B, C, 
D. Let us furthermore assume that the price of one-quarter 
of v^heat is three pounds sterling, or 60 shillings. Since 
rent is here merely a differential rent, this price of 60 shil- 
lings per quarter for the Voorst soil is equal to the cost of 
production, that is equal to the capital plus the average profit. 

Let A be this worst soil and yield for each 50 shillings 
of expenditure one-quarter of wheat worth 60 shillings, so 
that the profit is 10 shillings, or 20%. 

Let B yield for the same expenditure 2 quarters of wheat, 
or 120 shillings. This would be 70 shillings of profit, or a 
surplus profit of 60 shillings. 

Let C yield for the same expenditure 3 quarters, or 180 
shillings; total profit 130 shillings, surplus profit 120 shil- 
lings. 

Let D yield 4 quarters, 240 shillings, 190 shillings of 
profit, 180 shillings of surplus profit. 

Then we shall have the following succession: 

Table I. 



Class of 
Soil 


Product 


Capital 

Ad- 
vanced 


Profit 


Rent 


Quarters 

1 
2 

3 
4 


Shillings 


Quarters 

Ve 
1% 
^% 


Shillings 

10 

70 
130 
190 


Quarters 


Shillings 


A 
B 
C 
D 


60 
120 
180 
240 


50 
50 
50 
50 


1 
2 
3 


60 
120 
180 


Totals 


10 


600 








6 


360 



The respective rents are: D = 190 sh. — 10 sh., or the 
difference between D and A; C = 130 — 10 sh., or the dif- 
ference between C and A ; B = YO — 10 sh., or the differ- 
ence between B and A ; and the total rent for B, C, D equals 
6 quarters, or 360 shillings, equal to the sum of the differ- 
ences between D and A, C and A, B and A. 

This succession representing a certain product in a cer- 
tain condition may, abstractly considered, descend from D 
to A, from very fertile to less and less fertile soil, or rise 
from A to D, from relatively poor to more and more fertile 
soil, or may fluctuate in a now rising, now descending curve, 



First Form of Differential Rent. 765 

for instance from D to C, from C to A, from A to B (and 
we have already mentioned tlie reasons why this might take 
place in reality). 

The process leading to the descending succession took place 
in the following manner: The price of one-quarter of wheat 
rose gradually from, say, 15 shillings to 60 shillings. x\s 
soon as the 4 quarters produced by D (assume them to have 
been so many million quarters) did not suffice any more, the 
price of wheat rose to a point where the missing supply 
could be raised by C. That is to say, the price of wheat 
must have risen to 20 shillings per quarter. When it had 
risen to 30 shillings per quarter, B could be taken under cul- 
tivation, and when it reached 60 shillings per quarter, A 
could be taken in, and the capital invested in it did not have 
to be content with a lower rate of profit than 20%. In this 
way a rent was formed for D, first of 5 shillings per quarter, 
or 20 shillings for the 4 quarters produced by it; then of 
15 shillings per quarter, or 60 shillings, then of 45 shillings 
per quarter, or a total of 180 shillings for 4 quarters. 

If the rate of profit of D originally was likewise 20%, 
then its total profit on 4 quarters of wheat was also but 10 
shillings, but this stood for more grain when the price was 
15 shillings than it does when the price is 60 shillings. But 
since the grain enters into the reproduction of labor-power, 
and a portion of each quarter has to make good some wages 
and another some constant capital, the surplus-value under 
this condition was higher, and to that extent, other things 
being the same, the rate of profit. (The matter of the rate 
of profit will have to be analysed separately and in detail.) 

On the other hand, if the succession went the opposite way, 
that is, if the movement started from A, then the price of 
wheat at first rose above 60 shillings, when new land had to 
be taken under cultivation. But when the necessary supply 
was raised by B, a supply of 2 quarters, the price fell once 
more to 60 shillings. B raised wheat at a cost of 30 shillings 
per quarter, but sold it at 60 shillings, because its supply 
sufficed just to cover the demand. In this way a rent was 
formed, first of 60 shillings for B, and in the same way for 



^(i(i Capitalisf Production. 

C and D ; always assuming tliat tlie market price remained at 
60 shillings, although C and D relatively raised wheat hav- 
ing a value of 20 and 15 shillings respectively, because the 
supply of the one-quarter raised by A was as much needed as 
ever to satisfy the total demand. In this case the rising of 
the demand above the supply first raised by A, then by A 
and B, would not have made it possible to cultivate succes- 
sively B, C and D, but would merely have caused a general 
extension of the sphere of cultivation, by which the more 
fertile lands came u.nder its control later. 

In the first succession, an increase in the price would 
raise the rent and lower the rate of profit. The lowering of 
the rate of profit might be entirely or partially checked by 
opposing circumstances. This point will have to be treated 
later. It should not be forgotten, that the general rate of 
profit is not determined uniformly in all spheres of produc- 
tion by the surplus-value. It is not the agricultural profit, 
which determines the industrial profit, but vice versa. But 
of this more anon. 

In the second succession the rate of profit on the invested 
capital would remain the same. The mass of profit would 
present itself in less grain; but the relative price of grain, 
compared with that of other commodities, would have risen. 
Only, whatever increase there might be in the profit, would 
separate itself from the actual profit in the form of rent, in- 
stead of flowing into the pockets of the capitalist tenant and 
appearing as a growing profit. The price of grain, how- 
ever, would remain unchanged under the conditions assumed 
here. 

The development and growth of differential rent would 

' remain the same^, both with unaltered and with increasing 

prices, and with a continued progress from worse to better 

land as well as with a continued regression from better to 

worse land. 

So far we have assumed 1) that tlie price rises in the one 
succession and remains stationary in the other; 2) that there 
is a continual progression from better to worse soil, or from 
worse to better soil. 



First Form of Differential Rent. ydy 

But now let us assume that the demand for grain rises 
from its original figure of 10 to 17 quarters; furthermore, 
that the worst soil A is displaced by another soil A', which 
raises 1^ quarters at a price of production of GO shillings (50 
sh. cost plus 10 sh. for 20% profit), so that its price of pro- 
duction for one-quarter is 45 shillings ; or, perhaps, the old 
soil A may have become improved through a continued ra- 
tional cultivation, or may be cultivated more productively 
at the same cost, for instance, by the introduction of clover, 
etc., so that its product with the same investment of capital 
rises to 1-| quarters. Let us also assume that the classes B, 
C and D of soil supply the same product as ever, but that 
new classes of soil have been introduced, for instance. A' of 
a fertility between A and B, furthermore B' and B''' of a 
fertility between B and C. In that case we should witness 
the following phenomena : 

1) The price of production of one-quarter of wheat, or its 
regulating market price, would have fallen from 60 shillings 
to 45 shillings, or by 25%. 

2) The cultivation would have proceeded simultaneously 
from more fertile to less fertile soil, and from less fertile to 
more fertile soil. The soil A' is more fertile than A, but 
less fertile than the hitherto cultivated soils B, C and D. 
And B' and B^' are more fertile than A, A' and B, but less 
fertile than C and D. The succession would thus have pro- 
ceeded in crisscross fashion. Cultivation would not have 
proceeded to soil absolutely less fertile than A, etc., but it 
would have proceeded to relatively less fertile than the soils 
C and D ; on the other hand, cultivation would not have taken 
up soil absolutely more fertile, but at least relatively more 
fertile compared to the hitherto least fertile soils A or A 
and B. 

3) The rent on B' would have fallen; likewise the rent on 
C and D ; but the total rental would have risen from 6 quar- 
ters to Yf ; the mass of the cultivated and rent paying lands 
would have increased, and the mass of the product would 
have risen from 10 quarters to IT. The profit, if remaining 
the same for A, expressed in gi'ain, would have risen ; but the 



768 



Capitalist Production. 



rate of profit itself might have risen, because the relative 
surplus-value did. In this case the wages, and with them 
the investment of variable capital, and with it the total in- 
vestment, would have been reduced on account of the cheap- 
ening of the means of subsistence. The total rental would 
have fallen from 360 shillings to 345 shillings. 
Let us draw up the new succession. 

Table II. 





Product 




Profit 


R 


3nt 


Price of Pro- 


Class of 






Capital In- 










duction per 


Soil 


Qrs. 


Sh. 


vested 


Qrs. 


Sh. 


Qrs. 


Sh. 


Quarter 


A 


11/3 


60 


50 


2/9 


10 






45 sh 


A' 


12/3 


75 


50 


5/'9 


25 


1/3 


15 


36 sh 


B 


2 


90 


50 


8/9 


40 


2/3 


30 


30 sh 


B' 


2 1 '3 


105 


50 


12/9 


55 


1 


45 


25 2/7 sh 


B" 


2 2/3 


120 


50 


15/9 


70 


11/3 


60 


22 1/2 sh 


C 


3 


135 


50 


18/9 


85 


12/3 


75 


20 sh 


D 


4 


180 


50 


2 8/9 


130 


2 2/3 


120 


15 sh 


Total 


17 










7 2/3 


345 





rinally, if only the classes of soil A, B, C and D were cul- 
tivated, but their productivity raised in such a way that A 
would produce 2 quarters instead of 1, B, 4 quarters instead 
of 2, C, 7 quarters instead of 3, and D, 10 quarters instead 
of 4, so that the same causes would have acted differently 
upon the various classes of soil, the total production would 
have increased from 10 quarters to 23. Assuming that the 
demand would absorb these 23 quarters by an increase of 
the population and the falling of prices, we should get the 



following table: 



TaUe III. 



Class of 

Soil 


Product 


Capital In- 
vested 


Price of Pro- 
duction per 
Quarter 


Profit 


Rent 


Qrs 


Sh 


Qrs. 

1/3 
2 1/3 
5 1/3 
81 3 


Sli. 


Qrs. 


Sh. 


A 
B 
C 
D 


2 

4 
7 
10 


60 
120 
210 

300 


50 
50 
50 
50 


30 
15 

8 4/7 
6 


10 

70 

160 

250 


2 
5 

8 

15 


60 
150 
240 


Totai 


23 












450 



The numbers in this and in other tables are arbitrarily 
chosen, but the assumptions are quite rational. 

The first and principal assumption is that the improve- 
ment in agriculture acts differently upon different soils, and 
in this case more so upon the best classes of soil, C and D, 
than upon the A and B classes. Experience has shown that 



First Form of Differential Rent. 769 

this is indeed the case, although the opposite may also take 
place. If the improvement should affect the lesser soils more 
than the better ones, the rent on these last ones would have 
fallen instead of rising. 

But in our table we have assumed that the absolute growth 
of the fertility of all classes of soil is simultaneously accom- 
panied by an increase of the higher relative fertility of the 
better classes of soil, C and D, which implies an increasing 
difference between the various products with the same in- 
vestment of capital, and thus an increase of the differential 
rent. 

The second assumption is that the total demand must keep 
step with tlie increase of the total product. In the first place, 
one need not imagine such an improvement to come abruptly, 
but gradually, until the succession in table III is reached. 
In the second place, it is a mistake to say that the consump- 
tion of necessities of life does not grow with their cheapen- 
ing. The abolition of the corn laws in England proved the 
reverse (see ISTewman), and the contrary view is derived 
merely from the fact that great and sudden differences in 
the harvests, caused by the weather, bring about at one time 
an extraordinary fall, at another an extraordinary rise in the 
prices of cereals. While in such a case the sudden and short 
cheapness does not get time to exert its full effect upon the 
extension of consumption, the opposite takes place when the 
cheapening process arises out of the lowering of the regulat- 
ing price of production itself and has permanency. In the 
third place, a portion of the grain may be consumed in the 
shape of whiskey or beer. And the rising consumption of 
these articles is by no means confined within narrow limits. 
In the fourth place, this matter depends partly upon the in- 
crease of the population, and for the other part the country 
may be a gTain exporting one, as England was far beyond 
the middle of the 18th century, so that the demand is not reg- 
ulated by the boundaries of a mere national consumption. 
Finally the increase and cheapening of the wheat production 
may have the result of making wheat instead of rye or oats 
the principal article of consumption for the masses, so that 

2V/ 



'J'^O . Capitalist Production. 

the demand for it may grow for this reason alone, just as 
the opposite may take place when the product decreases and 
prices rise. — Under these assumptions, and with the figures 
previously chosen, succession K'o. Ill would show a fall in 
the price per quarter from 60 shillings to 30, that is 50%, 
that production compared to succession ISTo. I would increase 
from 10 quarters to 23, in other words, by 130% ; that the 
rent would remain stationary upon the soil B, be doubled 
upon C, and more than doubled upon D, and that the total 
rental would increase from 18 pounds sterling to 22, a growth 
of 22|-%. 

A comparison of these three tables (taking table I twice, 
one rising from A to D, and one descending from D to A), 
which may be considered either as existing gradations under 
some definite stage of society, for instance, as existing side 
by side in three different countries, or as succeeding one an- 
other in different periods of development in the same coun- 
try, would show: 

1) That the succession, when complete, whatever may have 
been the course of its formative process, always has the ap- 
pearance of being in a descending line; for in studying the 
rent, the point of departure will always be the soil producing 
the maximum of rent, and the closing point will be the soil 
yielding no rent. 

2) That the price of production of the worst soil, which 
yields no rent, is always the regulating market price, although 
this market price in .table I, if its succession was formed in 
an ascending line, could not remain stationary, unless better 
and better soil were cultivated. In that caSe the price of the 
grain produced on the best soil is a regulating one to the extent 
that it depends upon the quantity produced on such soil in 
what measure the soil of class A shall remain the regulator. 
For instance, if B, C, D should produce more that the demand 
calls for, then A would cease to be the regulator. This is 
what Storch has in mind, when he adopts the best class of 
soil as the regulating one. In this manner the American 
price of cereals regulates the English price. 

3) Differential rent arises from the differences in the nat- 



First Form of Differential Rent. 771 

Ural fertility of the soil which depends upon the prevailing 
degree of development of cultivation (leaving aside for the 
present the question of location), in other words, from the 
limited area of the best lands, and from the circumstance that 
equal capitals must be invested in unequal soils, which yield 
unequal products with the same capital. 

4) The existence of differential rent and of a graduated 
succession of differential rents may be due quite as much to 
a descending succession, which leads from the better to the 
worse soils, as to an ascending one, which takes the opposite 
direction. Or it may be brought about by alternating for- 
ward and backward movements. (Succession ISTo. II may 
form by a process from D to A, or from A to D; succession 
'No. II comprises both movements.) 

5) According to its mode of formation, differential rent 
may develop with a stationary, rising or falling price of the 
products of the soil. With a falling price the total produc- 
tion and the total rental may rise, and rent may form on 
hitherto rentless lands, even though the worst soil A may 
have been displaced by a better one, or may itself have be- 
come improved, and although the rent may decrease on other 
better, or even the best, lands (table II) ; this process may 
also be accompanied by a fall of the total rent (in money). 
Finally, when prices are falling on account of a general im- 
provement of cultivation, so that the product and the price 
of the product of the worst soils decrease, the rent may re- 
main the same or may fall on a part of the better soils, but 
rise on the best soils. It is true that the differential rent 
of every soil, compared with the worst soil, depends upon the 
price, say, of the quarter of wheat, when the difference of the 
quantity of products is given. But when the price is given, 
differential rent depends upon the magnitude of the differ- 
ences of the quantity of products, and if, with an increasing 
absolute fertility of all soils that of the better soil grows rel- 
atively more than that of the worse soil, the magnitude of 
this difference grows to that extent. In this way (see Table 
I), when the price is 60 shillings, the rent of D is determined 
by its differential product as compared to A, in other words, 



^^2 Capitalist Production. 

hj its surplus of 3 quarters. The rent is therefore three 
times sixty, or 180 shillings. But in Table III, in which 
the price is 30 shillings, the rent is determined by the quan- 
tity of the surplus product of D as compared to A, that is 8 
quarters, and therefore it is eight times thirty, or 240 shil- 
lings. 

This does away with the primitive misconception of dif- 
ferential rent still found among men like West, Malthus, 
Eicardo, to the effect tliat it necessarily requires a progress 
toward worse and worse soil, or an ever decreasing produc- 
tivity of agriculture. It rather may exist, as we have seen, 
with a progress to a better and better soil ; it may exist when 
a better soil takes the lowest position formerly occupied by 
the worst soil; it may be accompanied with a progressive im- 
provement of agriculture. Its premise is merely the in- 
equality of the different kinds of soil. So far as the devel- 
opment of productivity is concerned, it implies that the in- 
crease of absolute fertility of the total area does not do away 
with this inequality, but either increases it, or leaves it un- 
changed, or merely reduces it somewhat. 

From the beginning to the middle of the 18th centuiy 
England's cereal prices fell continually in spite of the falling 
prices of gold and silver, while at the same time (viewing 
this entire period) there was an increase of rent, of the rental, 
of the area of the cultivated lands, of agricultural production, 
and of the population. This corresponds to Table I combined 
with Table II in an ascending line, but in such a way that 
the worst land A is either improved or eliminated from the 
grain area ; this does not imply that it was not used for other 
agricultural or industrial purposes. 

From the beginning of the 19th century (the date should 
be given more precisely) until 1815 there is a continual rise 
in the cereal prices, accompanied by a steady growth of the 
rent, of the rental, of the volume of the cultivated lands, of 
agricultural production, and of the population. This cor- 
responds to Table I in a descending line. (Quote here some 
passages on the cultivation of inferior lands in those times.) 

In Petty's and Davenant's time, the farmers and land own- 



First Form of Differential Rent. jy^ 

ers complain about the improvements and the breaking of new 
ground; the rent on the superior soils falls, the total rental 
increases through the extension of the soils yielding rent. 

(These three points should b^ illustrated later on by quo- 
tations ; likewise the difference in the fertility of the different 
cultivated portions of the soil in a certain country.) 

The general rule in differential rent is that the market- 
value always stands above the total price of production of the 
mass of products. For instance, take Table I. The ten 
quarters of the total product are sold at 600 shillings, be- 
cause the market price is determined by the price of produc- 
tion of A, which amounts to 60 shillings per quarter. But 
the actual price of production is: 



A 1 qr. = 60 sh. 




1 qr. 


= 60 sh. 


B %■ qrs. = 60 sh. 




1 qr. 


= 30 sh. 


C 3 qrs. = 60 sh. 




1 qr. 


= 20 sh. 


D 4 qrs. = 60 sh. 


Average 


1 qr. 


= 15 sh. 


10 qrs. = 240 sh. 


1 qr. : 


= 24 sh. 



The actual price of production of these 10 quarters is 240 
shillings. But they are sold at 600 shillings, 250% too dear. 
The actual average price for 1 quarter is 24 shillings; the 
market price is 60 shillings, also 250% too dear. 

This is a determination by the market-value, which is en- 
forced on the basis of capitalist production by means of 
competition ; it creates a false social value. This arises from 
the law of the market-value, to which the products of the soil 
are subject. The determination of the market-value of the 
products, including the products of the soil, is a social act, 
although performed by society unconsciously and uninten- 
tionally. It rests necessarily upon the exchange-value of thr3 
product, not upon the soil and its differences in fertility. 

If we imagine that the capitalistic form of society is abol- 
ished and society is organized as a conscious and systematic 
association, then those 10 quarters represent a quantity of in- 
dependent labor, which is equal to that contained in 240 
shillings. In that case society would not buy this product 
of the soil at two and a half times the labor time contained 
in it. The basis of a class of land owners would thus be 



774 



Capitalist Production. 



destroyed. This would liave the same effect as a cheapening 
of the product to the same amount by foreign imports. While 
it is correct to say that, by retaining the present mode of pro- 
duction but paying the differential rent to the state, the 
prices of the products of the soil would remain the same, 
other circumstances remaining unchanged, it is wrong to say 
that the value of the products would remain the same, if cap- 
italist production were superseded by association. The same- 
ness of the market prices for commodities of the same kind is 
the way in which the social character of value asserts itself 
on the basis of capitalist production, as it does of any pro- 
duction resting on the exchange of commodities between in- 
dividuals. What society in its capacity as a consumer pays 
too much for the products of the soil, what constitutes a minus 
for the realisation of its labor time in agricultural production, 
is now a plus for a portion of society, for the landlords. 

A second circumstance, important for the analysis to be 
given under II in the next chapter, is the following: 

It is not merely a question of the rent per acre, or per hec- 
tare, nor in general of a difference between the price of pro- 
duction and the market price, nor between the individual and 
general price of production per acre, but it is also a question 
of how many acres of each class of soil are under cultivation. 
The point of importance is here primarily the magnitude of 
the rental, that is, of the total rent of the entire cultivated 
area ; but it serves us at the same time as a transition to the 
development of a rise in the rate of the rent, although there 
is neither a rise in the prices, nor an increase in the differ- 
ences of the relative fertility of the various kinds of soil when 
prices are falling. 

We had above: 

Tahle I. 



Class of 
Soil 


Acres 


Cost of Produc- 
tion 


Product 


Rent in 
Grain 


Rent in 
Money 


A 
B 
C 
D 


1 
1 

1 
1 


3 p. St. 
3 p. St. 
3 p. St. 
3 p. St. 


iqr. 
2qrs. 
3qrs. 
4qrs. 




Iqr. 

2qrs. 

8qrs. 




3 p. St. 
6 p. St. 
9 p. St. 


Totals 


4 




lOqrs. 


6qrs. 


18 p. St. 



First Form of Differential Rent. 



775 



!N^ow let us assume that the number of cultivated acres is 
doubled in every class. Then we have: 

Table I a. 



Class of 
Soil 


Acres 


Cost of Produc- 
tion 


Product 


Rent in 
Grain 


Rent in 
Money 


A 
B 
C 
D 


2 
2 
2 
2 


6 p. St. 
6 p. St. 
6 p. St. 
6 p. St. 


2qrs. 
4 qrs. 
6qrs. 
8 qrs. 




2 qrs. 
4 qrs. 
6 qrs. 




6 p. St. 
12 p. St. 
18 p. St. 


Totals 


8 




20 qrs. 


12 qrs. 


36 p. St. 



Let us assume two other cases, and let the first be one, in 
which production expands on the two inferior classes of soil, 
in the following manner: 

Table I h. 



Class of 


Acres 


Cost of Product 


Product 


Rent in 
Grain 


Rent in 


Soil 


Per Acre 


Total 


Money 


A 
B 
C 
D 


4 
4 
2 
2 


3-p/st. 
3 p, St. 

3 p/st. 
3 p/st. 


12 p/st. 
12 p/st. 

6 p/st. 

6 p/st. 


4 qrs. 
8 qrs. 
6 qrs. 
8 qrs. 




4 qrs. 
4 qrs. 
6 qrs. 




12 p/st. 
12 p/st. 
18 p/st. 


Totals 


12 




36 p/st. 


26 qrs. 


14 qrs. 


42 p/st. 



Finally let us assume an unequal expansion of production 
and of the cultivated area on all four classes, in the following 
manner : 

Table I c. 



Class of 


Acres 


Cost of Product 


Product 


Rent in 
Grain 


Rent in 


Soil 


Per Acre 


Total 


Money 


A 
B 
C 
D 


1 
2 
5 

4 


3 p/st. 
3 p/st. 
3 p/st. 
3 p'St. 


3 p/st. 

6 p/st. 
15 p/st. 
12 p/st. 


Iqr. 
4 qrs. 

15 qrs. 

16 qrs. 




2 qrs. 
10 qrs. 
12 qrs. 




6 p/st. 
30 p/st. 
36 p/st. 


Totals 


12 




36 p/st. 


36 qrs. 


24 qrs. 


72 p/st. 



In the first place, the rent per acre remains the same in 
all these four cases I, I a, I b and I c. For in fact the result 
of the same investment of capital per acre of the same class 
of soil has remained unchanged. I^othing more has been 
assumed than a fact which may be observed in any country 
at any given moment, namely that the various classes of soil 
participate in certain definite proportions in the entire cul- 



'j'/d Capitalist Production. 

tivated area. And furthermore, a fact which may be ob- 
served in anj two countries that are compared, or in the same 
country at different periods of time, namely that the propor- 
tion varies in which the cultivated area is distributed among 
these classes. 

If we compare la with I, then we see, if the cultivation 
of the soils of all four classes grows in the same proportion," 
that a doubling of the cultivated acres doubles the total pro- 
duction, and at the same time doubles the rent in grain and 
money. 

If we compare lb and Ic successively with I, we see that 
in both cases a triplication of the area subject to cultivation 
takes place. It rises in both cases from 4 acres to 12, but in 
lb it is the classes A and B which get the greatest share of 
the increase, although A pays no rent, and B yields the small- 
est differential rent. But of 8 newly cultivated acres A and 
B get 3 each, or 6 between the two of them, whereas C and D 
get only 1 acre each, or together 2 acres. In other words, 
three-quarters of the increase go to A and B, and only one- 
quarter to C and D. According to this assumption and com- 
paring lb with I, the trebled area of cultivation does not re- 
sult in a trebled product, for the product does not increase 
from 10 to 30, but only to 26. On the other hand, seeing 
that a considerable portion of the increase takes place on A, 
which does not yield any rent, and since the principal por- 
tion of the remaining increase takes place on B, the rent in 
grain rises only from 6 quarters to 14, and the rent in money 
from 18 pounds sterling to 42. 

But if we compare Ic with I, where the soil yielding no 
rent does not increase in area, and the soil yielding a mini- 
mum rent increases but slightly, while the principal portion 
of the increase takes place on C and D, we find that the treb- 
led area results in an increase of production from 10 quar- 
ters to 36, more than three times the quantity. The rent in 
grain has risen from 6 quarters to 24, or quadrupled; and so 
has the money rent from 18 pounds sterling to Y2. 

In all these cases the price of the agTicultural product 
naturally remains stationary. The total rental increases in 



First Form of Diiferential Rent. yyj 

all cases with, the extension of cultivation, unless it takes 
place exclusively on the worst soil, which does not pay any 
rent. But the growth is unequal. In proportion as the ex- 
tension of cultivation takes place upon the superior classes 
of soil and consequently the quantity of the products grows 
not merely at the ratio of expansion of the area, but even 
faster, the rent in grain and money increases. In proportion 
as the worst soil and the class next above it share principally 
in the expansion of the area (provided that the worst soil 
represents a constant class), the total rental does not rise in 
proportion to the extension of cultivation. If there are two 
countries, in which the class A, that yields no rent, is of the 
same nature, the rental stands in the reverse ratio to the ali- 
quot part represented by the worst soil and the lesser classes 
next above it in the total area of the cultivated soil, and there- 
fore in the reverse ratio to the quantity of the products of 
equal investments of capital on the same total areas of land. 
The proportion between the quantity of the worst cultivated 
soil and that of the better soil, within the total cultivated 
area of a certain country, thus has the opposite effect upon 
the total rental than the proportion between the quality of the 
worst cultivated soil and that of the better soil has upon the 
rent per acre and, other circumstances remaining the same, 
upon the total rental. The confounding these two things has 
given rise to many mistaken objections to differential rent. 

The total rental, then, increases by the mere extension of 
the cultivation, and by the consequent greater investment of 
capital and labor in the soil. 

But the most important point is this: Although it is our 
assumption that the proportion of the rents upon the various 
classes of soil remains the same, calculated per acre, and 
therefore also the rate of rent considered with reference to 
the capital invested in each acre, yet we must observe the fol-. 
lowing: If we compare la with I, the case in which the 
number of cultivated acres and the capital invested in them 
have been proportionately increased, we find that just as the 
total production has increased proportionately to the expanded 
agricultural area, that is just as both of them have been 



y'j'^ Capitalist Production. 

doubled, so has the rental. It has risen from 18 pounds ster- 
ling to 36, just as the number of acres has risen from 4 to 8. 

If we take the total area of 4 acres, we find that the total 
rental amounted to 18 pounds sterling, or the average rent, in- 
cluding the soil which does not pay any rent, 4^ pounds ster- 
ling. This calculation might be made, say, by a landlord 
owning all 4 acres. And in this way the average rent is 
statistically calculated upon a whole country. The total 
rental of 18 pounds sterling is secured by the investment 
of a capital of 10 pounds sterling. We call the ratio of these 
two figures the rate of rent; in the present case it is 180%. 

The same rate of rent follows in la, where 8 instead of 4 
acres are cultivated, but all classes of land have shared in the 
same proportion in the increase. The total rental of 36 
pounds sterling gives for 8 acres and an invested capital of 
20. pounds sterling an average rent of 4^ pounds sterling per 
acre and a rate of rent of 180%. 

But if we consider lb, in which the increase has taken 
place mainly upon the two inferior classes of soil, we find 
there a rent of 42 pounds sterling upon 12 acres, or an average 
rent of 3^ pounds sterling per acre. The invested total capital 
is 30 pounds sterling, and the rate of rent 140%. The aver- 
age rent per acre has decreased by one pound sterling, and 
the rate of rent has fallen from 180 to 140%. Here then we 
have an increase of the total rental from 18 pounds sterling 
to 42, and yet a fall of the average rent, calculated both per 
acre and per capital, while production grows also, but not 
proportionately. This takes place, although the rent upon 
all classes of soil, both per acre and per capital, remains the 
same. It does so, because three-quarters of the increase go 
to the class A, which does not pay any rent, and upon class 
B, which pays only the minimum rent. 

If the total extension in the case lb had taken place only 
upon the soil A, then we should have 9 acres upon A, 1 acre 
upon B, 1 acre upon C and 1 acre upon D. The total rental 
would be 18 pounds sterling, the same as before, the average 
rent upon the 12 acres would be 1^ p. st. per acre ; and a rent 
of 18 pounds sterling on an invested capital of 30 pounds 



First Form of Differential Rent. 779 

sterling would give a rate of rent of 60%. The average rent, 
both per acre and per invested capital, would have decreased, 
and the total rental would not have increased. 

Finally, let us compare Ic with I and lb. Compared to 
I, the area has been trebled, also the invested capital. The 
total rental is Y2 pounds sterling upon 12 acres, or 6 pounds 
sterling per acre against 4^ pounds sterling in case I. The 
rate of rent upon the invested capital (72: 30 pounds ster- 
ling) is 240% instead of 180%. The total product has risen 
from 10 quarters to 36. 

Compared to lb, where the total area of the cultivated 
acres, the invested capital, and the difference between the 
cultivated classes are the same, but the distribution different, 
the product is 36 quarters instead of 26, the average rent per 
acre is 6 pounds sterling instead of 3|, and the rate of rent 
with reference to the same invested total capital is 240% 
instead of 140%. 

'No matter whether we regard the various conditions in 
Tables la, lb and Ic as existing side by side in different 
countries, or as existing successively in the same country, we 
come to the following conclusions: so long as we have the 
conditions mentioned hereafter, that is, so long as the price 
of cereals remains unchanged, because the worst rentless soil 
has the same product; so long as the differences in the pro- 
ductivity of the different cultivated soils remain the same; 
so long as the respective products of the same invested cap- 
itals are the same for aliquot parts (acres) of the areas cul- 
tivated in every class of soil ; so long as the ratio between the 
rents per acre of each class of soils and with the same rate 
of rent upon the capital invested in each portion of the same 
kind of soil is constant: 1) the rental always increases with the 
extension of the cultivated area and with the consequent in- 
creased investment of capital, with the exception of the case in 
which the entire increase falls on the rentless soil. 2) 
Both the average rent per acre (total rental divided by the 
total number of acres) and the average rate of rent (total 
rental divided by the invested total capital) may vary verv 
considerably; both of them in the same direction, but in dif- 



780 Capitalist Production. 

ferent proportions compared to one anotlier. If we leave 
out of consideration the case, in which the increase takes 
place upon the rentless soil, we find that the average rent 
per acre and the average rate of rent upon the capital in- 
vested in agriculture depend upon the proportional shares, 
which the various classes of soil claim in the cultivated area ; 
or, what amounts to the same, upon the distribution of the 
employed total capital among the classes of soil of different 
fertility. Whether much or little land is cultivated, and 
whether the total rental is therefore larger or smaller (with 
the exception of the case, in which the increase is confined 
to A) the average rent per acre, or the average rent per in- 
vested capital, remains the same so long as the proportions of 
the participation of the various classes of soil in the total 
cultivated area remain unchanged. In spite of the rise, even 
of a very considerable one, in the total rental with the ex- 
tension of cultivation and the expansion of the invested cap- 
ital, the average rent per acre and the average rent per cap- 
ital fall whenever the extension of the rentless lands, or of 
the lands of inferior fertility, increases more than that of the 
superior rent paying ones. On the other hand the average 
rent per acre and the average rent per capital increase in 
proportion as the better lands constitute a greater part of the 
total area and employ a relatively greater share of the in- 
vested capital. 

Hence, if we consider the average rent per acre, or hectare, 
of the total cultivated soil, in the way that is generally done 
in statistical works, by comparing either different countries 
at different epochs, or different epochs in the same country, 
we find that the average level of the rent per acre, and con- 
sequently the total rental, corresponds in certain proportions 
(although by no means equal ones, but rather more rapidly 
moving ones) to the absolute, not to the relative, productivity 
of agriculture in a certain country, that is, to the mass of 
products brought forth by it on an average upon the same 
area. For the larger the share taken by the superior soils 
in the total cultivated area, the greater is the mass of products 
brought forth by equal investments of capital upon equally 



First Form of Differential Rent. 781 

large areas of land. And the higher is the average rent per 
acre. In the opposite case the reverse takes place. In this 
way the rent does not seem to be determined by the ratios 
of differential fertility, but of absolute fertility, and the law 
of differential rent seems thereby abolished. For this rea- 
son certain phenomena are disputed, or perhaps they are ex- 
plained by non-existing differences in the average prices of 
cereals and in the differential fertility of the cultivated lands, 
whereas such phenomena are merely due to the fact that the 
ratio of the total rental, either to the total area of the culti- 
vated soil, or to the total capital invested in this soil, so long 
as the fertility of the rentless soil remains the same and with 
it the price of production, and so long as the differences of 
the various classes of soil remain unchanged, is determined 
not merely by the rent per acre or the rate of rent per cap- 
ital, but quite as much by the proportional number of acres 
of each class of soil in the total number of cultivated acres ; 
or, what amounts to the same, by the distribution of the in- 
vested total capital among the various classes of land. Curi- 
ously enough this fact has been completely overlooked so far. 
At any rate we see (and this is important for the progress 
of our analysis), that the relative level of the average rent 
per acre, and the average rate of rent (or the ratio of the 
total rental to the total capital invested in the soil), may rise 
or fall, through the mere extensive expansion of cultivation, 
while prices remain the same, the differential fertilities of 
the various soils remain unaltered, and the rent per acre is 
constant, or while the rate of rent for the capital invested 
per acre in every actual rent paying class of soil, or for 
every rent paying capital, remains unchanged. 



We have to make the following additional remarks with 
reference to the form I of the differential rent, which also 
apply partly to form II: 

1) We have seen that the average rent per acre, or the 
average rate of rent per capital, may rise with an extension 
of cultivation, with stationary prices, and unaltered differ- 



782 Capitalist Production. 

ential fertilities of the cultivated lands. As soon as all the 
land in a certain country has been appropriated, while the 
investment of capital in land, the cultivation of the soil, and 
the population, have reached a certain level — all of vt^hich 
conditions are matters of fact as soon as the capitalist mode 
of production becomes the prevailing one and invades also 
agriculture — the price of the uncultivated soil of various 
classes (assuming differential rent to exist) is determined 
by the price of the cultivated lands of the same quality and 
equivalent location. The price is the same — ■ after deduct- 
ing the cost of breaking the ground — although this soil does 
not carry any rent. The price of the land is, indeed, nothing 
but the capitalised rent. But even in the case of cultivated 
lands their price pays only future rents, as for instance, when 
the regulating rate of interest is 5% and the rent for twenty 
years is paid in advance at one time. When land is sold, 
it is sold as a rent paying land, and the prospective character 
of the rent (which is here considered as a fruit of the soil, 
which it is only seemingly) does not distinguish the unculti- 
vated from the cultivated soil. The price of the uncultivated 
lands, like their rent, which it represents as though it were 
its contracted formula, is quite illusory, so long as the land 
is not actually used. But it is thus determined beforehand 
and realised as soon as a purchaser is found. Hence, while 
the actual average rent of a certain land is determined by its 
real average rental per year and by its proportion to the en- 
tire cultivated area, the price of the uncultivated portions of 
land is determined by that of the cultivated land, and is 
therefore but a reflex of the capital invested in cultivated land 
and of the results obtained by such investments. Since all 
lands with the exception of the worst carry rent (and this 
rent, as we shall see under the head of differential rent II, 
rises with the mass of the capital and the corresponding in- 
tensity of cultivation), the nominal price of the uncultivated 
portions of the soil is thus formed, and thus they become com- 
modities, a source of wealth for their owners. This explains 
at the same time, why the price of laud incT^eases in the whole 
region, even in the uncultivated part (Opdyke). The spec- 



First Form of Differential Rent. 783 

ulation in land, for instance in the United States, rests 
merely upon this reflex, which capital and labor throw on 
the uncultivated land. 

2) The advance in the extension of the cultivated soil in 
general takes place either toward inferior soil, or upon the 
various existing soils in different proportions according to 
the way in which they present themselves. The step toward 
inferior soil naturally is never made voluntarily, but cannot 
be due to aiiy thing but to rising prices (assuming the cap- 
italist mode of production to be a fact), and under any mode 
of production it will be a result of necessity. However, this 
is not absolutely so. An inferior soil is preferred to a rela- 
tively better soil on account of its location, which decides 
the point during all extension of cultivation in new coun- 
tries; furthermore for the reason that, while the formation 
of the soil in a certain region may belong to the superior 
ones, the better will nevertheless be relieved here and there 
by inferior soil, so that the inferior soil must be cultivated 
along with the superior on account of its location. If in- 
ferior soil is surrounded by superior soil, then the better soil 
gives to the poorer soil the advantage of location as against 
other and more fertile soil, which is not connected with the 
already cultivated soil, or with soil about to be cultivated. 

In this way the state of Michigan was one of the first to 
export corn. Yet its soil is on the whole poor. But its 
vicinity to the state of ISTew York and its water routes by 
lakes and by the Erie Canal gave to it the advantage before 
the naturally more fertile states which were farther west. 
The example of this state, as compared to the state of ]^ew 
York, shows us also the transition from superior to inferior 
soil. The soil of the state of l^ew York, particularly the 
western portion of it, is far more fertile, particularly in the 
raising of wheat. This fertile soil was made sterile by rob- 
bing it, and now the soil of Michigan appeared as the more 
fertile. 

"In 1836 wheat flour was shipped from Buffalo to the 
West, principally from the wheat belt of ISTew York and 
Canada. At present, only 12 years later, enormous supplies 



784 Capitalist Production. 

of wheat and flour are brought from the West, by way of 
Lake Erie, and shipped East upon the Erie Canal, in Buffalo 
and the neighboring port of Blackrock. The export of wheat 
and flour was particularly stimulated by the European fam- 
ine in 1847. The wheat in western ISTew York thus became 
cheaper, and the raising of wheat less profitable; this caused 
the ]Srew York farmers to throw themselves more upon cattle 
raising and dairying, fruit growing, etc., lines in which the 
ISTorthwest, in their opinion, will be unable to compete with 
them directly." (J. W. Johnston, Notes on North America, 
London, 1851, I, p. 222.) 

3) It is a mistaken assumption that the land in colonies, 
and in new countries generally, which can export cereals at 
cheaper prices, must for that reason be necessarily of a greater 
natural fertility. The cereals are not only sold below their 
value in such cases, but below their price of production, 
namely below the price of production determined by the rate 
of profit in the older countries. 

The fact that we, as Johnston says (p. 223) " are accus- 
tomed to connect with these new states, which ship annually 
such large supplies of wheat to Buffalo, the idea of great 
natural fertility and endless stretches of rich soil," depends 
primarily upon economic conditions. The entire population 
of such a country, f©** instance of Michigan, is at first almost 
exclusively engaged in agriculture, and particularly in produc- 
ing agricultural goods in large masses, which they can alone 
exchange for products of industry and tropical goods. The 
whole surplus product of this population appears, therefore, 
in the shape of cereals. This distinguishes from the outset 
the colonial states founded on the basis of the modern world 
market from those of former, particularly of antique, times. 
They receive from the world market finished products, which 
they would have to make themselves under different circum- 
stances, such as clothing, tools, etc. Only on such a basis 
were the southern states of the Union enabled to make of cot- 
ton their staple product. The division of labor upon the 
world market permitted this. Hence, if they seem to pro- 
duce a large surplus product in spite of their youth and small 



First Form of Differential Rent. 7S5 

relative population, it is not due to the fertility of tlieir soil, 
nor to the productivity of tlieir labor, but to the onesided 
form of their labor, and therefore of the surplus product, in 
which this labor is incorporated. 

Furthermore, a relatively inferior soil, which is newly cul- 
tivated and was never touched by civilisation before, has ac- 
cumulated much easily soluble plant food, at least in its up- 
per layers, provided the climatic conditions are not ex- 
tremely hard, so that it will yield crops without any manure 
for a long time, even with very superficial cultivation. The 
western prairies have the additional advantage of requiring 
hardly any expenses for clearing, since nature has cleared 
them herself. -^^^ In less fertile districts of this kind a sur- 
plus is produced, not through the great fertility of the soil or 
the yield per acre, but through the large number of acres, 
which may be superficially cultivated, because this soil costs 
the cultivator little or nothing compared with older coun- 
tries. For instance, where share farming exists, as it does 
in certain parts of ISTew York, Michigan, Canada, etc., there 
this condition is found. A family cultivates superficially, 
say, 100 acres, and although the product per acre is not large, 
the product of 100 acres yields a considerable surplus for 
sale. In addition to this cattle may be kept on natural pas- 
tures for almost nothing, without any artificial grass mead- 
ows. It is the quantity, not the quality of the soil, which 
decides the point here. The possibility of this superficial 
cultivation is naturally more or less rapidly exhausted, in a 
reverse ratio to the fertility of the new soil, and in a direct 
ratio to the export of its products. " And yet such a coun- 
try will yield excellent harvests, even of wheat ; whoever 
skims the first cream off the soil, will be able to ship an 

^^ [It is precisely the rapidly growing cultivation of such prairie or steppe dis- 
tricts which of late turns the renowned statement of Malthus, that the population 
" presses upon the means of subsistence," into ridicule, and has created the reverse 
of it in the complaints of the agrarians, who wail that agriculture and with it 
Germany will be ruined, unless the means of subsistence which are pressing upon 
the population are kept out by force. The cultivation of these steppes, prairies, 
pampas, llanos, etc., is only in its beginnings; its revolutionising effect on Euro- 
pean agriculture will, therefore, make itself felt later on even more than hitherto. 
— F. E.] 

2X 



786 Capitalist Prochiciion. 

abundant surplus of wheat to the market" (L. c, p. 224). 
In countries of older civilisation the property relations, the 
determination of the price of the uncultivated soil by that of 
the cultivated, etc., make such an extensive economy impos- 
sible. 

That this soil does not have to be very rich, as Eieardo 
imagines, nor soils of equal fertility have to be cultivated, 
may be seen from the following: In the state of Michigan 
465,900 acres were planted in 1848 with wheat and produced 
4,Y39,300 bushels, or an average of 10|- bushels per acre; de- 
ducting the seed grain this leaves less than 9 bushels per 
acre. Of the 29 counties of this state 2 produced an average 
of 7 bushels, 3 an average of 8 bushels, 2 one of 9, 1 one of 
10, 6 one of 11, 3 one of 12, 4 one of 13 bushels, and only 
one county produced an average of 16 bushels, and another 
of 18 bushels per acre (L. c, p. 226). 

In practical agriculture a higher fertility of the soil coin- 
cides with a greater immediate utilisation of this fertility. 
This may be greater in a naturally poor soil than in a natu- 
rally rich one ; but it is the kind of soil which a colonist will 
take up first, and must take up from lack of capital. 

4) The extension of cultivation to greater areas — aside 
from the case just mentioned, in which recourse must be had 
to inferior soil than that hitherto cultivated — upon the vari- 
ous classes of soil from A to D, for instance, the cultivation 
of larger tracts of B and C, does not presuppose by any 
means a previous rise of the prices of cereals, any more 
than the annually increasing expansion, for instance of cot- 
ton spinning, presupposes a continual rise in the price of 
yarn. Although a considerable rise or fall of market prices 
affects the volume of production, nevertheless, aside from 
this, that relative overproduction which is in itself identical 
with accumulation always takes place even with average 
prices, whose stand has neither a paralysing nor an excep- 
tionally stimulating effect upon production. This takes 
place in agriculture as well as in all other capitalistically 
managed lines of production. Under different modes of 
production, this relative overproduction is effected directly 



First Form of 'Diiferential Rent. 787 

by the increase of population, and in colonies by continual 
immigration. The demand increases constantly, and in an- 
ticipation of this new capital is continually invested in new 
land, although the products of this land will vary according 
to circumstances. It is the formation of new capitals, which 
in itself brings this about. But so far as the individual cap- 
italist is concerned, he measures the volume of his production 
by that of his available capital, to the extent that he himself 
can still superintend it. What he aims at is to occupy as 
much room as possible on the market. If there is any over- 
production, he does not blame himself, but his competitors. 
The individual capitalist may expand his production by ap- 
propriating a larger aliquot share of the existing market, or 
by expanding the market itself. 



CHAPTEE XL. 

THE SECOND FORM OP DIFFEEENTIAL KENT. 

(Differential Rent II.) 

So far we have considered differential rent only as the re- 
sult of the different productivity of different investments of 
capital upon equal areas of land with different fertilities, so 
that the differential rent was determined by the difference 
between the yield of the capital invested in the worst, rent- 
less, soil and that of the capital invested in the superior soils, 
Here we had the invested capitals side by side upon different 
areas of land, so that every new investment of capital signi- 
fied a more extensive cultivation of the soil, an expansion of 
the cultivated area. But in the last analysis the differential 
rent was by its nature merely the result of the different pro- 
ductivity of equal capitals invested in land. 

But could it make any difference, perhaps, whether masses 
of capital of different productivities are invested successively 
on the same piece of land, or side by side on different pieces 
of land, provided that the results are the same? 



788 Capitalist Production. 

In the first place, it cannot be denied that it is immaterial, 
so far as the formation of surplus profit is concerned, whether 
3 pounds sterling of cost of production are invested in one 
acre of A and yield one-quarter of wheat, so that 3 pounds 
sterling are the price of production and regulating market 
price of 1 quarter, while 3 pounds sterling of cost of produc- 
tion applied to one acre of B give 2 quarters, and with them 
a surplus profit of 3 pounds sterling, while in the same way 
3 pounds sterling of cost of production applied to one acre of 
C give 3 quarters and 6 pounds sterling of surplus profit, and 
finally 3 pounds sterling of cost of production applied to one 
acre of D give 4 quarters and 9 pounds sterling of surplus 
profit; or whether the same result is accomplished by apply- 
ing these 12 pounds sterling of cost of production, or 10 
pounds sterling of capital, with the same results and in the 
same succession upon one and the same acre. It is in either 
case a capital of 10 pounds sterling, a part of whose succes- 
sively invested shares of a value of 2| pounds sterling each, 
whether invested in four acres of different fertility side by 
side, or successively upon one and the same acre, does not 
yield any surplus profit on account of their different prod- 
ucts, whereas the other parts yield a surplus profit in propor- 
tion to the difference of their yield from that of the rentless 
investment. 

The surplus profits and the various rates of surplus profit 
for different parts of the value of capital are formed in the 
same way in either case. And the rent is nothing but a form 
of this surplus profit, which constitutes its substance. But 
at any rate, there are some difficulties in tliis second method 
in the way of the transformation of surplus profit into rent, 
of this change of form, which implies the transfer of the sur- 
plus profit from the capitalist tenant to the owner of the land. 
This accounts for the obstinate resistance of the English ten- 
ants to an official statistics of agriculture. It accounts for 
the struggle between them and the landlords over the ascer- 
tainment of the actual results of an investment of capital 
(Morton). For the rent is fixed when the lease for the land 
is made out, and after that the surplus profits arising from 



Second Form of Differential Rent. 789 

excessive investments of capital ,flow into the pockets of the 
tenant so long as the lease lasts. Therefore the tenants 
fought for long leases, and on the other hand the landlords 
enforced by their superior numbers an increase of the 
tenancies at will, which could be cancelled annually. 

It is evident from the outset that even though it is immate- 
rial for the law forming the surplus profit, whether equal capi- 
tals are invested with unequal results side by side upon equal 
areas of land, or whether they are invested successively on 
the same land, it does make a considerable difference for the 
conversion of surplus profit into ground-rent. The latter 
method confines this conversion within boundaries, which are 
narrower on one side and less definite on the other. For 
this reason the business of the tax assessor, as Morton shows 
in his '' Resources of Estates/" becomes a very important, com- 
plicated and diflicult profession in countries with an inten- 
sive cultivation (and economically we mean by intensive cul- 
tivation nothing else but the concentration of capital upon 
the same piece of land, instead of its distribution over ad- 
joining pieces of land). If the improvements of the soil 
are of the more permanent kind, the artificially raised dif- 
ferential fertility of the soil coincides with its natural fer- 
tility as soon as the lease expires, and this leads to the assess- 
ment of the rent by the basis of that which is due to the 
mere differences of fertility in different soils generally. On 
the other hand, so far as the formation of surplus profit is de- 
termined by the magTiitude of the working capital, the amount 
of the rent paid by a certain amount of capital is added to 
the average rent of the country and care is taken that the 
new tenant commands sufficient capital to continue cultiva- 
tion in the same intensive manner. 



In the study of differential rent II, the following points 
must be noted: 

1) Its basis and point of departure, not merely historic- 
ally, but even as concerns its movements at any given period, 
is differential rent I,. that is the simultaneous cultivation side 



790 Capitalist Production. 

by side of soils of different fertility and location; in otlier 
words the simultaneous application, side by side, of different 
portions of the total agricultural capital upon soil areas of 
different quality. 

Historically this is a matter of course. In colonies the 
colonists have but little capital to invest. The principal 
agents of production are labor and land. Every individual 
head of a family seeks to acquire for himself and his, an in- 
dependent field of employment, apart from that of his fellow 
colonists. This must be generally the case even under pre- 
capitalist modes of production in agriculture proper. In the 
case of sheep pastures, and generally of cattle raising as an 
independent line of production, the exploitation of the soil 
is more or less collective, and it is extensive from the outset. 
The capitalist mode of production starts out from former 
modes of production, in which the means of production are 
actually or legally the property of the tiller himself, in which 
agriculture is carried on by professionals. ISTaturally this 
mode of agTiculture gives way but gradually to the concen- 
tration of means of production and their transformation into 
capital with a simultaneous change of direct producers into 
wage workers. So far as the capitalist mode of production 
asserts itself here in a typical manner, it does so at first 
mainly in sheep pastures and cattle raising; after that it 
does not assert itself by a concentration of capital upon a rel- 
atively small area of land, but in production on a larger 
scale, so that the expense of keeping horses and other costs 
of production may be saved ; but in fact not by investing 
more capital in the same land. It is furthermore in the na- 
ture of field tillage that capital, which implies at this stage 
also the means of production already produced, should be- 
come the dominating element of agriculture, when cultivation 
has reached a certain hight and the soil has become corre- 
spondingly exhausted. So long as the tilled land constitutes 
a small area compared to the untilled, and so long as the 
strength of the soil has not been exhausted (and this is the 
case so long as cattle raising prevails Avith meat as the staple 
food, before agriculture proper and plant food have become 



Second Form of Differential Rent. 791 

dominant), the beginnings of the new mode of production 
show their opposition to peasants' economy mainly by large 
tracts of land which are tilled for the account of some cap- 
italist, in other words, the new mode of production itself 
starts out with an extensive application of capital to larger 
areas of land. It should therefore be remembered from the 
outset, that differential rent IS^o. I is the historical basis from 
which a start is made. On the other hand, the movement of 
differential rent No. II puts in its appearance at any given 
moment only upon a territory, which is itself but the varie- 
gated basis of differential rent No. I. 

2) In differential rent No. II, the differences in the dis- 
tribution of capital (and of the ability to get credit) among 
tenants are added to the differences in fertility. In manu- 
facture proper, each line of business rapidly develops its own 
minimum volume of business and a corresponding minimum 
of capital, below which no individual business can be carried 
on successfully. In the same way each line of business de- 
velops, above this minimum, a normal size of capital, which 
the mass of producers must be able to command and do com- 
mand. Whatever exceeds this, can form extra profits; what- 
ever is below this, does not get the average profit. The cap- 
italist mode of production invades agriculture but slowly and 
unevenly, as may be seen in England, the classic land of the 
capitalist mode of production in agriculture. To the extent 
that no free importation of cereals exists, or that its effect 
is but limited, because its volume is small, the producers 
working upon inferior soil and thus with worse than average 
conditions of production determine the market price. A large 
portion of the total mass of capital invested in husbandry and 
available for it is in their hands. 

It is true that the farmer spends much labor on his small 
plot of land. But it is labor isolated from the objective so- 
cial and material conditions of productivity, labor robbed and 
stripped of these conditions. 

This circumstance makes it possible for the real capitalist 
tenants to appropriate a portion of the surplus profit; this 
would not be so, at least so far as this point is concerned, if 



792 Capitalist Production. 

the capitalist mode of production were as "uniformly devel- 
oped in agriculture as in manufacture. 

Let us first consider the formation of surplus profit in 
differential rent ISTo. II, without taking notice for the present 
of the conditions under which the conversion of this surplus 
profit into ground rent may take place. 

It is evident, in that case, that differential rent ISTo. II is 
but a different expression of differential rent ISTo. I, but that 
it coincides with it in substance. The different fertility of 
the various kinds of soil exerts its influence in the case of 
differential rent ISTo. I only to the extent that it brings about 
unequal results of the capitals invested in the soil, so that 
the products of equal capitals, or of equal aliquot parts of 
unequal capitals, are unequal. Whether this inequality takes 
place for different capitals invested successively in the same 
land, or for capitals invested in various tracts of different 
classes of soil, cannot alter anything in the differences of 
fertility, or in the differences of their products, nor in the 
formation of the differential rent for the more productively 
invested parts of capital. It is still the soil which shows 
different fertilities with the same investment of capitals, only 
that in this case the same soil does for a capital successively 
invested in different portions what different kinds of soil do 
in the case of differential rent ISTo. I for various equally large 
portions of social capital invested in them. 

If the same capital of 10 pounds sterling, which is shown 
by Table I to be invested in the shape of separate capitals 
of 2-| pounds sterling by different tenants in one acre of each 
of the soils A, B, C and D, were invested successively in one 
and the same acre D, so that its first investment yielded 4 
quarters, the second 3 quarters, the third 2 quarters and the 
fourth 1 quarter (or vice versa), then the price of the 1 quar- 
ter, which is furnished by the least productive capital, namely 
the price of 3 pounds sterling, would not pay any differential 
rent, but would determine the price of production, so long as 
the supply of wheat with a price of production of 3 pounds 
sterling would be needed. And siuce our assumption is that the 
capitalist mode of production prevails, so that the price of 3 



Second Form of Differential Rent. 793 

pounds sterling includes the average profit made bj a capital of 
2^ pounds sterling generally, the other three portions of capital 
of 2 1 pounds sterling each will make surplus profits accord- 
ing to the difference of their product, since this product is not 
sold at their own price of production, but at the price of pro- 
duction of the least productive investment of 2|- pounds ster- 
ling, which does not pay any rent and whose price of produc- 
tion is determined by the general law of prices of production. 
The formation of the surplus profits would be the same as in 
Table I. 

We see here once more that differential rent ISTo. II is con- 
ditioned upon differential rent ISTo. I. The minimum prod- 
uct raised by a capital of 2^ poimds sterling upon the worst 
soil is here assumed to be 1 quarter. Take it then that the 
tenant using soil of class D invests in this same soil, aside 
from the 2^ pounds sterling which raise 4 quarters and pay 
a differential rent of 3 quarters, still another capital of 2| 
pounds sterling, which raise only 1 quarter, like the same 
capital upon the worst soil A. This would be a rentless in- 
vestment, whicb would pay him only the average profit. 
There would be no surplus profit, which could be converted 
into rent. On the other hand, this decreasing yield of the 
second investment of capital in D would not have any influ- 
ence on the rate of profit. It would be the same as though 
2-| pounds sterling had been invested in another acre of the 
soil of class A, a circumstance which would in no way affect 
the surplus profit, nor for that reason the differential rent 
of the classes A, B, C, and D. But for the tenant this ad- 
ditional investment of 2-| pounds sterling in T> would have 
been quite as profitable as the investment of the original 2^ 
pounds sterling had been per acre of D, according to our as- 
sumption, although this had raised 4 quarters. Furthermore, 
if two other investments of 2^ pounds sterling each should 
yield an additional product of 3 quarters and 2 quarters re- 
spectively, another decrease would have taken place compared 
with the product of the first investment of 2^ pounds ster- 
ling in D, which amounted to 4 quarters and paid a surplus 
profit of 3 quarters. But it would be merely a decrease in 



794 Capitalist Production. 

the amount of surplus profit, and would not affect either the 
average profit or the' regulating price of production. It 
"would have such an effect only if the additional production 
yielding this decreasing surplus profit should make the pro- 
duction upon A superfluous and throw class A out of cultiva- 
tion. In that case the decreasing fertility of the additional 
investments of capital in class D would be accompanied by 
a fall of the price of production, for instance from 3 pounds 
sterling to 1| pounds sterling, and the class B would become 
the rentless regulator of the market price. 

The product of D would not be 4 + 1 + 3 + 2 = 10 
quarters, whereas it was only 4 quarters formerly. But the 
price per quarter as regulated by B would have fallen to 1^ 
pounds sterling. The difference between D and B would be 
10 — 2^8 quarters, at 1^ pounds sterling per quarter, or 
12 pounds sterling, whereas the money rent in D used to be 9 
pounds sterling. This should be noted. Calculated per acre, 
the amount of the rent would have risen by 33^% in spite of 
the decreasing rate of the surplus profits on the two additional 
capitals of 2^ pounds sterling each. 

We see by this to what highly complicated combinations 
differential rent in general, and particularly form II coupled 
with form I, may give rise, whereas Ricardo, for instance, 
treats it very onesidedly and as a simple matter. One may 
meet, as in the above case, with a fall of the regulating mar- 
ket price and at the same time with a rise of the rent upon 
superior soils, so that both the absolute product and the abso- 
lute surplus product grow. (In differential rent 'No. I, in a 
descending line, the relative surplus product and thus the 
rent per acre may increase, although the absolute surplus 
product per acre may remain constant or even decrease.) 
But at the same time the fertility of the investments of capital 
made successively in the same soil decreases, although a 
large portion of them falls upon the superior lands. From a 
certain point of view — both as concerns the product and the 
prices of production — the productivity of labor has risen. 
But from another point of view it has decreased, because the 
rate of surplus profit and the surplus product per acre de- 



Second Form of Differential Rent. 795 

crease for the various investments of capital in the same soil. 
Differential rent E"©. II, with a decreasing fertility of the 
successive investments of capital, would be necessarily accom- 
panied with a rise of the price of production and an absolute 
decrease of the productivity only in the case that these in- 
vestments of capital could be made on none but the worst soil 
A. If one acre of A, which raised with an investment of a 
capital "of 2-| pounds sterling 1 quarter at a price of produc- 
tion of 3 pounds sterling, should raise only a total of 1| quar- 
ters with an additional investment of 2|^ pounds sterling, or a 
total investment of 5 pounds sterling, then the price of pro- 
duction of this 1| quarter would be 6 pounds sterling, or that 
of one quarter 4 pounds sterling. Every decrease of the 
productivity with a growing investment of capital would im- 
ply a relative decrease of the product per acre in such a case, 
whereas it would signify only a decrease of the surplus prod- 
uct upon superior soils. 

The nature of the matter will carry with it the fact that 
with the development of intensive culture, i. e., with succes- 
sive investments of capital upon the same soil, mainly the 
superior soils will show this tendency, or will show it to a 
greater degree. (We are not speaking now of .permanent im- 
provements, by which a hitherto useless soil is converted into 
useful soil.) The decreasing fertility of the successive in- 
vestments of capital must, therefore, have principally the 
effect indicated above. The better soil is chosen, because it 
offers the best prospects that the capital invested in it will 
be profitable, since this soil contains the greater quantity of 
the useful elements of fertility, which need but be utilised. 

When after the abolition of the corn laws the cultivation in 
England was made still more intensive, a great deal of the 
former wheat land was used for other purposes, particularly 
for cattle pastures, while the tracts best adapted t o wheat 
and fertile were drained and otherwise improved. The cap- 
ital for wheat culture was thus concentrated into a more lim- 
ited area. 

In this case — and all possible surplus rates between the 
highest surplus product of the best soil and the product of 



796 Capitalist Production. 

the rentless soil A coincide here, not with a relative, but with 
an absolute increase of the surplus product per acre — ■ the 
newly formed surplus profit (eventually rent) does not rep- 
resent a portion of a former average profit converted into 
rent (not a portion of the product in which the average profit 
formerly incorporated itself) but an additional surplus profit, 
which converted itself out of this form into rent. 

Only in the case in which the demand for cereals would in- 
crease to such an extent, that the market price would rise 
above the price of production of A, so that for this reason the 
surplus product of A, B, or any other class of soil could be 
supplied only at a higher price than 3 pounds sterling, would 
the decrease of the results of an additional investment of cap- 
ital in A, B, C and D be accompanied by a rise of the price 
of production and of the regulating market price. To the 
extent that this would last for a certain length of time with- 
out calling forth the cultivation of additional soil (which 
should be at least of the quality of A), or without bringing en 
a cheaper supply through other circumstances, wages would 
rise in consequence of the dearness of bread, other circum- 
stances remaining the same, and the rate of profit would fall 
accordingly. In this case it would be immaterial, whether 
the increased demand would be satisfied by drawing upon in- 
ferior soil than A, or by additional investments of capital, 
no matter upon which of the four classes of soil. Differential 
rent would then rise in connection with a falling rate of profit. 

This one case, in which the decreasing fertility of addi- 
tional capitals invested in already cultivated soils may lead 
to an increase of the price of production, a fall in the rate of 
profit, and a formation of higher differential rents — for this 
rent would rise under the given circumstances upon all classes 
of soil just as though inferior soil than A were regulating the 
market — has been stamped by Ricardo as the only case, the 
normal case, to which he reduces the entire formation of 
differential rent ISTo. II. 

This would also be the case, if only the class A of soils were 
cultivated, and if successive investments of capital upon it 



Second Form of Differential Rent. 797 

were not accompanied by a proportional increase of the 
product. 

Here then differential rent 'No. I is entirely lost sight of 
when analysing differential rent ISTo. II. 

With the exception of this case, in which the supply from 
the cultivated classes of soil is insufficient, so that the market 
price stands continually higher than the price of production, 
until new soil of an inferior character is taken under culti- 
vation in addition to the others, or until the total product of 
the additional capitals invested in the various classes of soil 
can be supplied only at a higher price of production than the 
hitherto customary one, with the exception of this case the 
proportional decrease in the productivity of the additional 
capitals leaves the regulating price of production and the rate 
of profit unchanged. For the rest three cases are possible. 

a) If the additional capital upon any one of the classes 
of soil A, B, C or D yields only the rate of profit determined 
by the price of production of A, then no surplus profit, and 
therefore no rent, is formed, any more than there would be, 
if additional soil of the A class had been cultivated. 

b) If the additional capital yields a larger product, then 
a new surplus profit (potential rent) is, of course, formed, 
provided the regulating price remains the same. This is not 
necessarily the case, namely it is not the case when this ad- 
ditional production throws the soil A out of cultivation and 
thus out of the succession of the competing soils. In this 
case the regulating price of production falls. The rate of 
profit would rise, if a fall in wages were connected with this, 
or if the cheaper product were to enter into the constant capi- 
tal as one of its elements. If tlie increased productivity of 
the additional capital had taken place upon the best soils C 
and D, it would depend entirely upon the degree of, the in- 
creased productivity and the mass of the additional capitals 
to what extent a formation of increased surplus profit (and 
thus increased rent) would be connected with the fall in 
prices and the rise of the rate of profit. This rate may 
also rise without a fall in wages, by a cheapening of the ele- 
ments of constant capital. 



798 Capitalist Production. 

c) If tlie additional investment of capital takes place with 
decreasing surplus profits, but in such a way that the product 
of such additional investment still leaves a surplus above 
the product of the same capital in A, a new formation of 
surplus profits takes place under all circumstances, unless the 
increased supply throws the soil A out of cultivation. This 
new form.ation of surplus profit may take place simultaneously 
upon all four soils, D, C, B and A. But if the worst soil A 
is crowded out of cultivation, then the regulating price of 
production falls, and it will depend upon the proportion be- 
tween the reduced price of 1 quarter and the increased num- 
ber of quarters yielding a surplus profit, whether the surplus 
profit exj)ressed in money, and consequently the differential 
rent, shall rise or fall. But at any rate we meet here with the 
peculiarity, that in spite of decreasing surplus profits of suc- 
cessive investments of capital the price of production may 
fall, instead of rising, as it seems it ought to do at first 
sight. 

These additional investments of capital with decreasing 
surplus products correspond entirely to the case, in which 
four new and separate capitals would be invested in soils hav- 
ing a fertility ranging between A and B, B and C, C and D, 
for instance four capitals of 2|- pounds sterling each and 
yielding 1-|, 2-|, 2|, and 3 quarters respectively. Surplus 
profits (potential rents) would form upon all these kinds of 
soil for all four additional capitals, although the rate of sur- 
plus profit, compared with the surplus profit of the same in- 
vestment of capital, on the corresponding better soil, would 
have decreased. And it would be immaterial, whether these 
four capitals were invested in D, etc., or distributed between 
D and A. 

We now come to one essential difference between the two 
forms of differential rent. 

With a constant price of production and constant differ- 
ences, the rental and the average rent per acre, or the average 
rent per capital, may rise under differential rent J^o. I. But 
the average is a mere abstraction. The actual amount of the 



Second Form of DiiferenUal Rent. 799 

rent, calculated per acre or per capital, remains the same 
here. 

On the other hand, under the same conditions, the amount 
of the rent calculated per acre may rise, although the rate 
of rent, measured by the invested capital, remains the same. 

Let us assume that production is doubled by the investment 
of 5 pounds sterling in each of the soils A, B, C and D instead 
of 2-| pounds sterling, a total of 20 pounds sterling instead 
of 10 pounds sterling, with the relative fertilities unchanged. 
This would be the same as though 2 acres instead of 1 were 
being cultivated, with the same cost, on each one of these classes 
of soil. The rate of profit would remain the same, also its 
ratio to the surplus profit or the rent. But if A were raising 
2 quarters now, and B, 4, C, 6, D, 8, the price of production 
would nevertheless remain at 3 pounds sterling per quarter 
because this increment is not due to a doubled fertility of 
the same capital, but to the same proportional fertility of a 
doubled capitah The two quarters of A would now cost 6 
pounds sterling, just as one quarter used to cost 3 pounds 
sterling. The profit would have doubled on all four classes 
of soils, but only because the invested capital did. But in 
the same proportion the rent would also have become doubled. 
It would now be two quarters for B instead of one, four for 
C instead of two, and six for D instead of three. And cor- 
responding to this the money rent for B, C, and D would now 
be 6 pounds sterling, 12 pounds sterling, and 18 pounds ster- 
ling respectively. Like the product per acre, so the rent in 
money per acre would be doubled, and consequently the price 
of the land also, in which this rent is capitalised. If calcu- 
lated in this manner, the amount of the rent in grain and 
money riseSj and thus the price of land, because the standard 
by which the calculation is made, the acre, is a tract of a 
constant magnitude. On the otlier hand, calculating it as 
the rate of rent on the invested capital, no change has taken 
place in the proportional amount of the rent. The total 
rental of 36 is proportioned to the invested capital of 20 as 
the rental of 18 was proportioned to the invested capital of 10. 
The same holds good for the ratio of the money rent of all 



800 



Capitalist Production. 



classes of soil to the capital invested in them, for instance, 12 
pounds sterling of rent in C are proportioned to 5 pounds 
sterling of capital, as 6 pounds sterling of rent used to be 
proportioned to 2-| pounds sterling of capital. No new differ- 
ences arise here between the invested capitals, but new sur- 
plus profits arise, because the additional capital is invested in 
one of the rent paying soils, or in all of them, with the same 
proportional product. If this double investment were made 
only in one of these soils, for instance in C, the differential 
rent, calculated per capital, would remain the same between 
C, B, and D. For while its mass is doubled in C, so is the 
invested capital. 

This shows that the amount of rent in products and money, 
and with it the price of the land, may rise while the price of 
production, the rate of profit, and the differences of fertility 
remain unchanged (and with them remain unchanged the 
rate of surplus profit or the rent, calculated on the capital). 

The same may take place with decreasing rates of surplus 
profits and of rent, that is, with a decreasing productivity of 
the rent paying additional investments of capital. If the sec- 
ond investments of capital of 2^ pounds sterling had not 
doubled the product, but B would raise only 3^ quarters, C, 5 
quarters, and D, 6 quarters, then the differential rent for the 
second capital of 2-J poimds sterling in B would be only -J 
quarter instead of one quarter, in C, one quarter instead of 
two, and in D, two quarters instead of three. The propor- 
tions between rent and capital for the two successive invest- 
ments would then be as follows : 



First Investment 



Second Investment 



B: Rent 3 p/st., Capital 2 IS p st. 
C: Rent 6 p 'st., Capital 2 1/2 pst. 
D:Rent 9 pst., Capital 2 1/2 p.'st. 



Rent 1 1/2 p/st.. Capital 2 1/2 p/st. 
Rent 3 p/st.. Capital 2 1/2 p/st. 
Rent 6 p/st., Capital 2 1/2 p/st. 



In spite of this decreased rate of the relative productivity 
of capital and thus of surplus profit, calculated per capital, 
the rent in gTain and money would have risen in B from one 
to one and a half quarter ( from 3 to 4-J pounds sterling), in 
C, from two quarters to three (from 6 pounds sterling to 9 
pounds sterling), and in D, from three quarters to five (from 



Second Form of Differential Rent. 



8oi 



9 pounds sterling to 15 pounds sterling). In this ease the 
differences for the additional capitals, compared with the 
capital invested in A, would have decreased, the price of pro- 
duction would have remained the same, but the rent per acre, 
and consequently the price of the land per acre, would have 
risen. 

The combinations of differential rent N'o. II, which are 
conditioned upon differential rent IsTo. I as their basis, are 
analysed in the following chapters. 



CHAPTER, XLI. 



DIFFEEElSTTIAl, KENT II. FIKST CASE : CONSTANT PEICE 

OF PRODUCTION. 

This assumption implies that the market price is regulated 
the same as ever by the capital invested in the worst soil A. 

1) If the additional capital invested in any one of the rent 
paying soils B, C, D produces no more than the same capital 
upon the soil A, in other words, if it pays only the average 
profit by means of the regulating price of production, but no 
surplus profit, then the effect upon the rent is nil. Every- 
thing remains as it is. It is the same as though any number 
of acres of the A quality, of the worst soil, had been added to 
the cultivated area. 

2) The additional capital brings forth upon every one of 
the different soils additional products proportional to their 
magnitude; in other words, the volume of production gTows 
according to the specific fertility of every class of soil, in pro- 
portion to the magnitude of the additional capital. We 
started out in chapter XXXIX from the following Table I: 





Acres 


Capital 
P/st. 


Profit 
P/st. 


Cost of 
Prod. 

P St. 


Prod- 
uct 
Qrs. 


Selling 
Price 
P/st. 


Yield 


Rent 


Rate of 


Class of 
Soil 


Qrs. 


P/st. 


Surplus 
Profit 


A 
B 
C 
D 


1 
1 

1 
1 


21 2 
21 2 

2 1/2 

2 1/2 


12 
12 
1,2 
12 


3 
3 
3 
3 


1 
2 
3 

4 


3 
3 
3 
3 


3 
6 
9 
12 


1 
2 
3 


3 
6 
9 


0% 
12% 
^% 
36% 


Totals 


4 


10 




12 


10 




30 


6 


18 





2Y 



8o2 Capitalist Production. 

This table is now transformed into Table II. 



Class 


Acres 


Capital 

P.St. 


Profit 

P. St. 


Cost of 
Prodc'n 

P.St. 


Prod- 
uct 
Qrs. 


Selling 
Price 
P.St. 


Yield 


Rent 


Rate of 


of 
Soil 


Qrs. 


P.St 


Surplus 
Profit 


A 
B 
C 
D 


1 
1 
1 
1 


212 + 21/2= 5 
2 1,2 + 21,2= 5 
21 2 + 21,-2= t 
21/2 + 2 1/2= 5 


1 
1 
1 
1 


6 
6 
6 
6 


2 
4 
6 

8 


3 
3 
3 
3 


6 
12 
18 

24 


2 
4 
6 


6 
12 

18 


120% 
240% 
360% 


Total 


4 


20 






20 




60 


12 


86 





It is not necessary in this case that the investment of capi- 
tal should be doubled in all classes of soil, as it does in this 
Table. The law is the same, so long as additional capital is 
invested in one, or several, of the rent paying soils, no mat- 
ter in what proportion. It is only necessary that production 
should increase upon every kind of soil in the same ratio as 
the capital. The rent rises here merely in consequence of an 
increased investment of capital in the soil, and in proportion 
to this increase. This increase of the product and of the rent 
in consequence of, and proportionately to, the increased in- 
vestment of capital is just the same, so far as the quantity of 
the product and of the rent is concerned, as though the culti- 
vated area of the rent paying lands of the same quality had 
been increased and taken under cultivation with the same in- 
vestment of capital as that previously invested in the same 
classes of land. In the case of Table II, for instance, the 
result would remain the same, if the additional capital of 2^ 
pounds sterling per acre were invested in one additional acre 
each of B, C and D. 

This assumption, furthermore, does not imply a more pro- 
ductive investment of capital, but only an investment of more 
capital upon the same area with the same success as before. 

All proportional relations remain the same here. True, 
if we do not consider the proportional differences, but the 
purely arithmetical ones, then the differential rent may 
change upon the various classes of soil. Let us assume, for 
instance, that the additional capital has been invested only in 
B and D. In that case the difference between D and A is 
7 quarters, whereas it was only 3 before ; the difference be- 
tween B and A is 3 quarters, whereas it was one; that be- 



Differential Rent 11. First Case. 



803 



tween C and B is minus one, whereas it was plus one, etc. 
But this arithmetical difference, which is decisive in differen- 
tial rent I, so far as it expresses the difference of productivity 
with equal investments of capital, is here quite immaterial, 
because it is a consequence of different additional invest- 
ments, or of no additional investments, of capital, while the 
difference for each aliquot part of capital upon the various 
lands remains unchanged. 

3) The additional capitals bring forth surplus products 
and thus form surplus profits, but at a decreasing rate, not in 
proportion to their increase. Table III. 



Class 
of 


Acres 


Capital 

P. St. 


Proiit 

P.St. 




Product 
Qrs. 


Sell- 
Price 

P. St. 


Yield 

P. St. 


Rent 


Rate 

of 

S'rpls 

profit 


Soil 


Qrs. 


p. St. 


A 
B 
C 
D 


1 

1 
1 

1 


2K 
2J^+2%= 5 
2^+2^= 5 
2^+214= 5 


1 
1 
1 


3 
6 
6 
6 


2 + lJ4= Z% 
3+2=5 


3 
3 
3 
3 


3 

1014 
15 
22'^ 







16K 


0% 

90% 

180% 

330% 






17JI 


Z% 


21 


17 




51 


10 


30 





In the case of this third assumption it is again immate- 
rial, whether the additional second investments of capital are 
uniformly distributed over the various classes of soil or not; 
whether the decreasing production of surplus profit proceeds 
in equal or unequal proportions; whether the additional in- 
vestments of capital fall all of them upon the same rent pay- 
ing class of soil, or whether they are distributed equally or 
unequally over soils of different quality paying rent. All 
tliese circumstances are immaterial for the law which we are 
developing here. The only premise is that additional invest- 
ments of capital must yield a surplus profit upon any one 
of the rent paying soils, but in a decreasing ratio to the 
amount of the increase of capital. The limits of this de- 
crease move in the above illustration o"f Table III between 4 
quarters = 12 p.st., the product of the first investment of 
capital upon the best soil D, and 1 quarter = 3 p.st., the 
product of the same investment of capital upon the worst soil 
A. The product of the best soil on the first investment of 
capital forms the maximum boundary, and the product of 
the same investment of capital in the worst soil A, which 



8o4 Capitalist Production. 

pays no rent and yields no surplus profit, forms the mini- 
mum limit of the product, which the successive invest- 
ments of capital yield upon any of the various classes of soils 
producing a surplus profit with successive investments of 
capital and a decreasing productivity. Just as assumption 
No. II corresponds to a condition, in which new pieces of 
the same quality are added to the cultivated area among the 
superior soils, so that the quantity of any one of the culti- 
vated soils is increased, so assumption No. Ill corresponds 
to a condition, in which additional pieces of soil are culti- 
vated in such a way that their various degrees of fertility are 
distributed among soils between D and A, among soils from 
the best to the worst kind. If the successive investments of 
capital take place exclusively upon the soil D, they may in- 
clude the existing differences between D and A, likewise 
those between D and C and those between D and B. If all 
the successive investments are made upon soil C, they will 
comprise only differences between C and A and C and B; if 
made exclusively upon B, only differences between B and A. 

But this is the law: That the rent increases absolutely 
upon all these classes of soil, although not in proportion to 
the additional capital invested. 

The rate of surplus profit, considering both the additional 
capital and the total capital invested in the soil, decreases; 
but the absolute magnitude of the surplus profit increases. 
In like manner the decreasing rate of profit on capital in 
general is generally accompanied by an absolutely increasing 
mass of profit. Thus the average surplus profit of the invest- 
ment of capital upon B amounts to 90% on the capital, 
whereas it amounted to 120% on the first investment of cap- 
ital. But the total surplus profit increases from one quarter 
to one and a half quarter, or from 3 pounds sterling to 4^ 
pounds sterling. Considering the total rent by itself — and 
not comparing it with the doubled magnitude of the advanced 
capital — it has risen absolutely. The differences of the 
rents of the various kinds of soil and their relative propor- 
tions may vary here; but this variation in the differences is 



Differential Rent II. First Case. 805 

here a consequence^ not a cause, of tlie increase of the rents 
compared to one another. 

4) The case, in which the additional investments of capi- 
tal upon the superior soils bring forth a greater product than 
the original ones, requires no further analysis. It is a matter 
of course that under this assumption the rent per acre will 
rise, and will do so at a greater rate than the additional capi- 
tal, no matter upon which kind of soil the investment may 
have been made. In tliis case the additional investment of 
capital is accompanied bj improvements. This includes the 
case, in which an additional investment of less capital pro- 
duces the same or a greater result than did formerly an in- 
vestment of more capital. This case is not quite identical 
with the former one, and this is a distinction, which is im- 
portant in all investments of capital. For instance, if 100 
make a profit of 10, and 200, employed in a certain form, 
make a profit of 40, then the profit has risen from 10% to 
20%, and to that extent it is the same as though 50, em- 
ployed in a more effective form, make a profit of 10 in- 
stead of 5.. We assume here that the profit is combined with 
a proportional increase of the product. But the difference 
is this, that I must double the capital in the one case, whereas 
in the other I produce the double effect by the same capital. 
It is by no means the same whether I bring forth the same 
product as before with half as much living and materialized 
labor, or twice the product as before with the same labor, or 
four times the former product with twice the labor. In the 
first case, labor in a living or materialised form is released, 
which may be employed otherwise; the power to dispose of 
capital and labor increases. The release of capital (and 
labor) is in itself an augmentation of wealth ; it has just the 
same effect as though this additional capital had been ob- 
tained by accumulation, but it saves the labor of accumula- 
tion. 

Take it that a capital of 100 has produced a product of 
ten yards. The 100 may include both constant capital, liv- 
ing labor and profit. In that case one yard costs 10. JSTow 



8o6 Capitalist Production. 

if I can produce 20 yards with the same capital of 100, then 
one yard costs 5. On the other hand, if I can produce 10 
yards with a capital of 50, then one yard likewise costs 5, 
and a capital of 50 is released, assuming the former supply 
of commodities to be sufficient. Again, if I have to invest 
200 of capital in order to produce 40 yards, then one yard also 
costs 5. The determination of the value, or price, does not 
indicate such differences as these, neither does the mass of 
products proportional to the investment of capital. But in 
the first case, capital is released; in the second case addi- 
tional capital is saved to the extent that a duplication of pro- 
duction would be required; in the third case the increased 
product can be obtained only by an augmentation of the in- 
vested capital, although not in the same proportion as it 
would be if the increased product had to be supplied by the 
old productive power. (This belongs in Part I.) 

From the point of view of capitalist production the em- 
ployment of constant capital is always cheaper than that of 
variable capital, not where it is a question of increasing the 
surplus-value, but of reducing the cost price. For a saving 
of costs even in the element creating the surplus-value, labor, 
performs this service for the capitalist and makes profit for 
him, so long as the regulating price of production remains the 
same. This presupposes in fact the existence of a develop- 
ment of credit and of an abundance of loan capital cor- 
responding to the capitalist mode of production. On the one 
hand I employ 100 pounds sterling of additional constant 
capital, if 100 pounds sterling are the product of five la- 
borers during one year ; on the other hand, 100 pounds ster- 
ling in variable capital. If the rate of surplus-value is 100%, 
then the value created by those five laborers is 200 pounds 
sterling; on the other hand, the value of 100 pounds sterling 
of constant capital is 100 pounds sterling, or perhaps 105 
pounds sterling in its capacity as loan capital, if the rate of 
interest is 5%. The same sums of money express largely 
different values in product, according to whether they are ad- 
vanced to production as values of constant or variable capital. 
Furthermore, as concerns the cost of the commodities from 



Differential Rent II. First Case. 807 

the point of view of the capitalist, there is also this difference 
that of 100 pounds sterling of constant capital only the wear 
and tear passes into the value of the product to the extent 
that this money is invested in fixed capital, whereas 100 
pounds sterling invested in wages pass wholly into the values 
of commodities and must be reproduced in them. 

In the case of colonists and of independent small producers 
in general, who have no command at all over capital or at 
least command it only at a high rate of interest, that part 
of the product which stands in place of wages is their revenue, 
whereas it constitutes an investment of capital for the capi- 
talist. The colonist, therefore, regards this expenditure of 
labor as the indispensable prerequisite of his product, which 
is the thing that interests him first of all. As for his surplus- 
labor, after deducting that necessary labor, it is evidently 
realised in a surplus-product; and as soon as he can sell this, 
or even use it for himself, he looks upon it as something that 
cost him nothing, because it cost him no materialised labor. 
It is only the expenditure of materialised labor which ap- 
pears to him as an outlay of wealth. Of course, he tries to 
sell as high as possible; but even a sale below value and 
below the capitalist price of production still appears to him as 
a profit, unless this profit is claimed beforehand by debts, 
mortgages, etc. But for the capitalist the investment of 
both variable and constant capital represents an outlay of 
capital. The relatively larger outlay of the capitalist reduces 
the cost-price, and in fact the value of commodities, provided 
other circumstances remain the same. Hence, although the 
profit arises only from surplus-labor, consequently only from 
the employment of variable capital, still it may seem to the 
individual capitalist that living labor is the most expensive 
element of his cost of production, which should be reduced to 
a minimum above all others. This is but a capitalistically 
distorted form of the correct view that the relatively greater 
use of past labor, compared to living labor, signifies an in- 
crease in the productivity of social labor and a greater social 
wealth. From the point of view of competition, everything 
appears thus distorted and inverted. 



8o8 Capitalist Production. 

Assuming the prices of production to remain unchanged, 
additional investments of capital maj be made with an un- 
altered, an increasing, or a decreasing productivity upon the 
better soils, that is upon all soils from B upward. Upon soil 
A this would be possible, under the conditions assumed by 
us, only in the case that productivity should remain the same, 
in which case this land continues to pay no rent, or in the case 
that productivity increases in which case a portion of 
the capital invested in A would produce rent, while the re- 
mainder would not. But it would be impossible, if the pro- 
ductivity upon A were to decrease, for in that case the price 
of production would not remain unchanged, but would rise. 
But under all these circumstances the surplus-product and the 
surplus-profit corresponding to it increases per acre, and with 
them eventually the rent, in grain or in money, regardless of 
whether the surplus-product yielded by them is proportional 
to their magnitude, or above or below this proportion, regard- 
less of whether the rate of the surplus-profit of capital remains 
constant, rises or falls when this capital increases. The 
growth of the mere mass of surplus-profit, or of the rent calcu- 
lated per acre, that is, an increasing mass calculated on the 
same unaltered unit, in the present case on a definite quantity 
of land, such as an acre or an hectare, expresses itself as an 
increasing ratio. Hence the magnitude of the rent, calcu- 
lated per acre, increases under such circumstances simply in 
consequence of the increase of the capital invested in the soil. 
This takes place when the prices of production remain the 
same, no matter whether the productivity of the additional 
capital stays unaltered, or decreases, or increases. These 
last named circumstances modify the volume, in which the level 
of the rent per acre rises, but not the fact of this increase 
itself. This is a phenomenon, which is peculiar to differen- 
tial rent IsTo. II and distinguishes it from differential rent 
]^o. I. If the additional investments of capital, instead of 
being made successively one after another upon the same soil, 
were made side by side upon new additional soil of the cor- 
responding quality, the mass of the rental would have in- 
creased, and, as previously shown, the average rent of the cul- 



Differential Rent 11. First Case. 809 

tivated total area would likewise have increased, but not the 
size of the rent per acre. When results remain the same so 
far as the mass and value of the total production and of the 
surplus product are concerned, the concentration of capital 
upon a smaller area of land develops tlie size of the rent per 
acre, whereas its distribution over a larger area, under the 
same circumstances, and other circumstances remaining the 
same, does not produce this effect. But the more the capi- 
talist mode of production develops, the more develops also the 
concentration of capital upon the same area of land, and the 
higher rises the rent calculated per acre. Consequently, if 
we have two countries, in which the prices of production are 
identical, the diilerences of the various kinds of soil the same, 
and the same amount of capital invested, but in such a way 
that the investment is made in the form of successive outlays 
upon a limited area in one country, whereas in the other 
country it is made more in the shape of co-ordinated outlays 
upon a wider area, then the rent per acre, and with it the 
price of land, would be higher in the first and lower in the sec- 
ond country, although the mass of the rent would be the same 
in both countries. The difference in the size of the rent could 
not be explained in such a case out of the natural fertility of 
the various kinds of soil, nor out of the quantity of employed 
labor, but solely out of the different ways in which the capital 
is invested. 

In speaking of a surplus-product in this case, we mean that 
aliquot part of the product, in which the surplus-profit presents 
itself. Ordinarily we mean by surplus-product that portion 
of the product, in which the total surplus-value is material- 
ised, or in some cases that portion, in which the average profit 
presents itself. The specific significance, which this term as- 
sumes in the case of rent-paying capital, gives rise to mis- 
understanding, as we have shown in another place. 



)io Capitalist Production. 



CHAPTEE XLII. 

DIFFEEENTIAL RENT II. SECOND CASE : FALLING PRICE 

OF PRODUCTION. 

The price of production may fall, when the additional in- 
vestments of capital take place with an unaltered, a falling, 
or a rising rate of productivity. 

I. The Productivity of the Additional Investment of 
Capital Remains the Same. 

In this case the assumption is that the product increases 
in the same proportion as the capital invested in the various 
soils and in accordance with their respective qualities. This 
implies, always assuming the differences of the various soil 
to remain unaltered, that the surplus-product increases in 
proportion to the increased investment of capital. This case, 
then, excludes any additional investment of capital upon soil 
A which might affect the differential rent. Upon this soil 
the rate of surplus-profit is ; it remains 0, since we have 
assumed that the productive power of the additional capital 
and therefore the rate of surplus-profit remain the same. 

But under these conditions the regulating price of produc- 
tion can fall only, because instead of the price of production 
of A that of the next best soil B, or of any better soil than 
A, becomes the regulator; so that the capital is withdrawn 
from A, or perhaps from B and A, in case the price of pro- 
duction of C should become the regulating one and all inferior 
soil should be eliminated from the competition of the wheat 
raising soils. The prerequisite for this would be, under the 
assumed conditions, that the additional product of the. ad- 
ditional investments of capital should satisfy the demand, so 



Differential Rent II. Second Case. 



8ii 



that the product of the inferior soils A, etc., would become 
superfluous for the formation of a full supply. 

Take, for instance, Table II, but in such a way that 18 
quarters instead of 20 will satisfy the demand. Soil A 
would drop out ; D and its price of production of 30 shillings 
would become regulating. In that case the differential rent 
would assume the following form: 

Table IV. 





0) 

< 


1^ 

'E 
« 
u 


1*8 
o 


So? 

^ o 
o'Z 
^ u 
tn 3 
CO 
U 


O rt 


0) V- 

.H-2 

1^ 


2 
13 


Rent 




U) 

"o 
in 


.5 E 


Rate of 

Surplus 

Profit 


B 
C 


1 
1 
1 

3 


5 
5 
5 


1 
1 
1 


6 
6 
6 


4 
6 
8 


154 
154 
1^ 


6 
9 
12 



2 3 

4 6 




60% 
120% 


T'Js 


15 


3 


18 


18 




27 


6 9 





In other words, compared to Table II the gTound-rent 
would have fallen in money from 36 pounds sterling to 9 
pounds sterling and in grain from 12 quarters to 6 quarters, 
whereas the total output would have fallen only by 2, from 
20 to 18. The rate of surplus-profit, calculated on the cap- 
ital, would have fallen by one-half, from 180% to 90%. 
The fall of the price of production in this case is accompanied 
by a decrease of the rent in grain and money. 

Compared to Table I there is merely a decrease in the 
money rent; the rent in grain in both cases is 6 quarters. 
But in the one case these bring 18 pounds sterling, in the 
other only 9 pounds sterling. So far as the soils C and D 
are concerned, the rent in grain compared to Table I remains 
the same. In fact, owing to the additional production put 
forth by the uniformly working additional capital, the product 
of A has been pushed out of the market, the soil A has been 
eliminated from the competition of the producing agents, and 
a new differential rent ~^o. 1 has thus been formed, in which 
the better soil B plays the same role as formerly the inferior 
soil A. Consequently the rent of B disappears on the one side ; 
on the other side nothing has been altered in the differences 



8l2 



Capitalist Production. 



of B, C and D by the investment of additional capital, ac- 
cording to our assumption. For this reason that part of the 
product, which is converted into rent, is reduced. 

If the above result, the satisfaction of the demand with A 
left out, should have been accomplished by the investment of 
more than double the capital upon C or D, or upon both, then 
the matter would assume a different aspect. Let us suppose, 
that a third investment of capital is made upon C. 

Table IV a. 





01 

< 


■5.=« 

CO 

U 


Profit 
£ 


Cost of 

Produc 

tion 

£ 


Prod- 
uct 
Qrs. 


Selling 

Price 

£ 


Yield 
£ 


Rent 


Rate of 

Surplus 
Profit 


"o 
in 


Grain 
Qrs. 


Money 
£ 


B 
C 
D 


1 

1 
1 

8 


5 


1 
1 


6 
9 
6 


4 
9 

8 


IV2 


6 
12 



3 

4 



6 




60% 

120% 


T'ls 


ny2 


3^ 


21 


21 




^1% 


7 


10 J^ 





In this case, compared to Table IV, the product of C has 
risen from 6 quarters to 9, the surplus product from 2 
quarters to 3, the money rent from 3 pounds sterling to 4^ 
pounds sterling. Compared to Table II, in which the money 
rent was 12 pounds sterling, and Table I, in which it was 
6 pounds sterling, it has fallen oif. The total rental in grain 
is 7 quarters. It has fallen compared to Table II, in which 
it was 12 quarters, but has risen compared to Table I, in which 
it was 6 quarters. In money the rent is lOi pounds sterling 
and has fallen compared to both of the other Tables, in which 
it was 18 and 36 pounds sterling respectively. 

If the third investment of capital, 'amounting to 21 pounds 
sterling, had been applied to soil B, it would indeed have 
altered the quantity of production, but would not have 
touched the rent, since the successive investments, according 
to our assumption, do not produce any diiferences upon the 
same soil, and soil B does not produce any rent. 

Again, if we assume that the third investment of capital 
takes place upon D instead of C, we get 



Differential Rent II. Second Case. 
Table IV b. 



B13 





CO 

D 
t-i 

< 


a 



Profit 

£ 


Cost of 

Pro- 
duction 
£ 


Prod- 
uct 
Qrs. 


Selling 

Price 

£ 


Rent 


£ 


Rate of 

Surplus 
Profit 


'0 


Yield 
£ 


Qrs. 


B 
C 
D 


1 
1 
1 


5 
5 


1 
1 

1^ 


6 
6 
9 


4 
6 
12 


1^ 
1% 


6 
9 

18 



2 

6 



3 
9 




60% 
120% 


T'ls 


3 


vt% 


3J^ 


21 


22 




33 


8 


12 





Here the total product is 22 quarters, more than double 
that of Table I, although the invested capital is only Yl\ 
pounds sterling as against 10 pounds sterling, in other words, 
not twice the size. The total product is also larger by 2 
quarters than that of Table II, although the capital in it is 
larger, namely 20 pounds sterling. 

Compared to Table I, the rent in grain upon soil D has 
increased from 2 quarters to 6, whereas the money rent has 
remained the sam^e, 9 pounds sterling. Compared to Table 
II the grain rent of D is the same, namely 6 quarters, but the 
money rent has fallen from 18 pounds sterling to 9 pounds 
sterling. 

Comparing the total rents, the grain rent of IV b is 8 quar- 
ters, larger than that of I which is 6 and than that of IV a 
which is Y quarters; but it is smaller than that of II which 
is 12 quarters. The money rent of IV b, 12 pounds sterling, 
is larger than that of IV a, which is 10-J pounds sterling, and 
smaller than that of Table I, which is 18 pounds sterling and 
that of Table II, which is 36 pounds sterling. 

In order that the total rental under the conditions of Table 
IV b, after the elimination of the rent upon B, may be 
equal to that of Table I, we need 6 pounds sterling of surplus 
product more, that is, 4 quarters at \\ pounds sterling, which 
is the new price of production. Then we shall have once 
more a total rental of 18 pounds sterling, the same as in Table 
I. The magnitude of the required additional capital will 
differ, according to whether we invest it upon C or D, or 
distribute it between these two. 

In the case of C 5 pounds sterling of capital result in a 



8i4 



Capitalist Production. 



surplus product of 2 pounds sterling, consequently 10 pounds 
sterling of additional capital will result in 4 quarters of ad- 
ditional surplus product. In the case of D 5 pounds sterling 
of additional capital would suffice for the purpose of produc- 
ing 4 quarters of additional grain rent, under the conditions 
assumed here, namely that the productivity of the additional 
investments of capital will remain the same. We should 
then get the following Tables: 

TaUe IV c. 



Soils 


m 

o 

u 

< 


Capital 
£ 


Profit 
£ 


Cost of 

Prod'n 

£ 


Prod- 
uct 
Qrs. 


Selling 

Price 

£ 


Yield 
£ 


Qrs. 


£ 


Rate of Sur- 
plus Profit 


B 
C 
D 


1 
1 
1 

3 


5 

15 

7K 


1 
3 
1^ 


6 
18 
9 


4 
18 
12 


iy2 
IK 
IK 


6 

27 
18 



6 
6 




9 
9 




60% 
120% 


T't'ls 


27% 


B% 


33 


34 




51 


12 


18 





Tahle IV d. 



Soils 


tn 

< 

1 
1 

1 


Capital 
£ 


Profit 
£ 


Cost of 
Produc- 
tion £ 


Prod- 
uct 
Qrs. 


Selling 

Price 

£ 


Yield 
£ 


Qrs. 


£ 


Rate of Sur- 
plus Profit 


D 


5 

5 

12K 


1 
1 

2K 


6 
6 
15 


4 
6 
20 


IK 


6 

9 

30 



2 
10 



3 
15 




60% 
120% 


Totals 


3 


22K 


4K 


27 


80 




45 


12 


18 





The total money rental would be exactly one-half of what 
it was in Table II, where the additional capitals were in- 
vested under conditions, in which the prices of production 
remained the same. 

The most important thing is to compare the above Tables 
with Table I. 

We find that the total money rental has remained the same, 
namely 18 pounds sterling, while the price of production has 
fallen by one-half, from 60 shillings to 30 shillings per 
quarter, and that the grain rent has been correspondingly 
duplicated, from 6 quarters to 12. The rent upon B has 
disappeared; the money rent has risen by one-half in IV c, 
but fallen by one-half in IV d; upon D the money rent has 
remained the same, 9 pounds sterling, in IV c, and has risen 



Differential Rent II. Second Case. 815 

from 9 pounds sterling to 15 pounds sterling in IV d. The 
production has risen from 10 quarters to 34 in IV c, and to 
30 quarters in IV d; the profit from 2 pounds sterling to 
5^ pounds sterling in IV c and to 4^ pounds sterling in IV d. 
The total investment of capital has risen in one case from 10 
pounds sterling to 27^ pounds sterling, and in the other from 
10 pounds sterling to 22^ pounds sterling, in either case by 
more than one-half. The rate of rent, that is, the rent 
calculated on the invested capital, is everywhere the same in 
all the Tables from IV to IV d for the respective kinds of 
soils, for this was implied by the assumption that every kind 
of soil should retain the same rate of productivity with the 
two successive investments of capital. But compared to 
Table I, this rate has fallen, both for the average of all kinds 
of soil and for each one of them individually. In Table I 
it was 180% on an average, whereas in IV c it is (18 -i- 
27i) X 100 = 65t^% and in IV d it is (18 ~ 22^) X 100 
= 80%. The average money rent per acre has risen. 
Formerly, in Table I, its average was 4^ pounds sterling per 
acre upon all four acres, whereas now, in IV c and IV d, it is 
6 pounds sterling per acre upon the three acres. Its average 
upon the rent paying soil was formerly 6 pounds sterling, 
whereas now it is 9 pounds sterling per acre. Hence the 
money value of the rent per acre has risen, and represents 
now double the grain product that it did formerly; but the 
12 quarters of grain rent are now less than one-half of the 
total product of 33 and 27 quarters respectively, whereas in 
Table I the 6 quarters represent f ths of the total product of 10 
quarters. Consequently, although the rent as an aliquot part 
of the total product has fallen, and has also fallen when cal- 
culated on the invested capital yet its money-value, calculated 
per acre, has risen and still more its value as a product. If 
we take soil D in Table IV d, we find that the cost of produc- 
tion expended in it amounts to 15 pounds sterling, of which 
12-J pounds sterling are invested capital. The money rent is 
15 pounds sterling. In Table I, for the same soil D, the cost 
of production was 3 pounds sterling, the invested capital 2^- 
pounds sterling the money rent 9 pounds sterling, that is, the 



8i6 Capitalist Production. 

money rent amounted to three times the cost of production 
and almost four times the capital. In Table IV d, the money 
rent for D, 15 pounds sterling, is exactly equal to the cost of 
production and only by ^th larger than the capital. Neverthe- 
less the money rent per acre is two-thirds larger, namely 15 
pounds sterling instead of 9 pounds sterling. In Table I the 
grain rent of 3 quarters constitutes three quarters of the total 
product of 4 quarters ; in Table IV d it is 10 quarters, or one- 
half of the total product of 20 quarters of one acre of D. This 
shows that the money value and grain value of the rent per 
acre may rise, although it forms a smaller aliquot part of the 
total yield and has fallen in proportion to the invested cap- 
ital. 

The value of the total product in Table I is 30 pounds ster- 
ling. The rent is 18 pounds sterling, more than one-half 
of it. The value of the total product of IV d is 45 pounds 
sterling, the rent is 18 pounds sterling, or less than one-half 
of it. 

The reason, why in spite of the fall of the price by 1^ pounds 
sterling per quarter, a fall of 50%, and in spite of the re- 
duction of the competing soil from 4 acres to 3, the total rent 
remains the same and the grain rent is doubled, while on a 
calculation per acre both the grain rent and money rent rise, 
is that more surplus product is created. The price of grain 
falls by 50%, the surplus product increases by 100%. But 
in order to accomplish this result, the total production under 
the conditions assumed by us must be trebled, and the invest- 
ment of capi'tal upon the superior soils must be more than 
doubled. In what proportion this last factor must increase, 
depends in the first place upon the distribution of the ad- 
ditional investments of capital among the superior and best 
kinds of soil, always assuming that the productivity of the 
capital upon every kind of soil increases proportionately 
to its size. 

If the fall of the price of production were smaller, less 
additional capital would be required for the production of the 
same money rent. If the supply required for the purpose 
of throwing soil A out of cultivation — and this depends not 



Differential Rent II. Second Case. 



817 



merely "apon the product per acre of A, but also upon the 
proportional share taken by A in the entire cultivated area 
— were larger, and with it also the amount of additional cap- 
ital required upon better soils than A, then, other circum- 
stances remaining the same, the money rent and the grain rent 
would have increased still more, although both of them would 
disappear upon the soil B. 

If the eliminated capital of A had been 5 pounds sterling, 
we should have to compare Tables II and IV d: The total 
product would have increased from 20 quarters to 30. The 
money rent would be only half as large, that is, 18 pounds 
sterling instead of 36 pounds sterling; the grain rent would 
be the same, namely 12 quarters. 

If a total product of 44 quarters, valued at 66 pounds 
sterling, could be produced upon D with a capital of 27i 
pounds sterling — ■ corresponding to the old rate of D, 4 
quarters per 2| pounds sterling of capital — then the total 
rental would once more reach the level of Table II, and we 
should get the following diagram : 



Soils 


Capital 
p. St. 


Product 
quarters 


Grain Rent 
quarters 


Money Rent 
p. st. 


B 
C 
D 


5 
5 

27K 


4 
6 

44 



3 

22 



3 

83 


Totals 


3T^ 


54 


25 


36 



The total production would be 54 quarters as against 20 
quarters in Table II, and the money rent would be the 
same, 36 pounds sterling. But the total capital would be 
37| pounds sterling, whereas it was 20 in Table 11. The 
invested total capital would almost be doubled, while produc- 
tion would be nearly trebled ; the grain rent would have been 
doubled, the money rent would have remained the same. 
Hence, if the price falls as a result of the investment of 
additional money-capital, while productivity remains the 
same, upon the better soils which pay rent, that is, all 
soils above A, then the total capital has a tendency not to 
increase in the same proportion as the production and the 
grain rent; so that the increase of the grain rent may offer 



2Z 



8i8 Capitalist Production. 

a compensation for the loss in money rent due to the falling 
price. The same law also manifests itself through the fact 
that the invested capital must be larger in proportion as it 
is more largely invested upon C than D, upon the soils pay- 
ing a smaller rent rather than upon the soils paying a larger 
rent. The point is simply this: In order that the money 
rent may remain the same or rise, a certain additional 
quantity of surplus product must be created, and this re- 
quires less capital in proportion as the productivity of the 
soils yielding a surplus product is greater. If the difference 
between B and C, C and D were still greater, still less 
additional capital would be required. The proportion is de- 
termined 1) by the proportion in which the price falls, in 
other words, by the difference between soil B, which is not 
paying any rent now, and soil A, which formerly was the 
soil that did not pay any rent; 2) by the proportion between 
the differences of the better soils from B upward; 3) by the 
amount of newly invested additional caj)ital, and 4) by its 
distribution among the different qualities of soil. 

In fact, we see that this law expresses merely the same 
thing which we ascertained already in the case of the first 
illustration: When the price of production is given, no mat- 
ter what may be its figure, the rent may increase in con- 
sequence of additional investments of capital. For owing to 
the elimination of A, we have now a new differential rent 
IsTo. I with B as the worst soil and 1^ pounds sterling per 
quarter as the new price of production ? This applies to 
Tables IV as well as to Table II. It is the same law, only 
that we have as a basis soil B instead of A, and a price 
of production of li pounds sterling instead of 3 poimds 
sterling. 

The important thing here is this: To the extent that so 
and so much additional capital was necessary for the purpose 
of withdrawing the capital from soil A and satisfying the 
supply without it, we find that this may be accompanied by 
an unaltered, a rising, or a falling rent per acre, if not upon 
all soils, then at least upon some and so far as the average 
of the cultivated lands is concerned. We have seen that the 



Differential Rent II. Second Case. 819 

grain rent and the money rent do not maintain a uniform 
ratio to one another. However, it is merely due to tradition 
that grain rent is still playing any role at all in political 
economy. One might demonstrate equally well that a manu- 
facturer can buy much more of his own yarn with his profit 
of 5 pounds sterling than he could formerly with a profit of 
10 pounds sterling. It shows at any rate, that the landlords, 
when they are at the same time owners or partners of manu- 
facturing establishments, sugar factories, distilleries, etc., 
may still make a considerable profit even when the money 
rent is falling, in their capacity as producers of their own 
raw materials. ^^'^ 

II. The Rate of Productivity of the Additional Capitals 

Decreases. 

This does not carry anything new into the problem, in so 
far as the price of production may also fall in this case as in 
the previously considered one, when additional investments of 
capital upon better soils than A make the product of A super- 
fluous and withdraw the capital from A, or lead to the em- 
ployment of A for the production of other things. We have 
analysed this eventuality exhaustively. We have shown that 
in this case the rent in grain and money per acre may in- 
crease, decrease, or remain unchanged. 

For the purpose of easy comparison we reproduce 

^' The above Tables IV a to IV d had to be figured over on account of an 
error of calculation which ran through all of them. While this did not affect 
the theoretical conclusions drawn from these Tables, it carried monstrous figures 
concerning the production per acre into them. Even these would not be objection- 
able on principle. In all maps showing geographical conditions in relief or giving 
a view of altitudes in profile it is customary to choose a much larger scale for the 
vertical than for the horizontal lines. Nevertheless, should any one feel that his 
agrarian heart is injured thereby, he is at liberty to multiply the number of acres 
with any figure that will satisfy him. One might also choose 10, 12, 14, 16 bushels 
(8 bushels = 1 quarter) per acre instead of 1, 2, 3, 4 quarters in Table I, and in 
that case the figures of the other Tables which are developed out of them would 
remain within the limits of probability; it will be found that the result, the pro- 
portion of increase in the rent compared to the increase in capital, comes to the 
same thing. This has been done in the following Tables, which were added by the 
editor. — F. E, 



820 



Capitalist Production. 
Table I. 



Soils 


Acres 


Capital 
P.St. 


Prod- 
uct 
P.St. 


Cost of Produc- 
tion per 
Quarter 


Prod- 
uct 
Qrs. 


Grain 
Rent 
Qrs. 


Money 
Rent 
P.St. 


Rate of Surplus 
Profit 


A 
B 
C 
D 


1 
1 
1 
1 


2% 
10 


'A 


3 
1 . 


1 
2 
3 

4 



1 
2 
3 



3 
6 
9 




120% 
240% 
360% 


Totals 


4 






10 


6 


18 


180% Average 



ITow let us assume that the figure of 16 quarters, supplied 
by B, C, D, with a decreasing rate of productivity, suffices 
to throw A out of cultivation. In that case Table III is 
transformed into the following 

Talle V. 



Soils 


Acres 


Capital 
P.St 


Profit 
P.St. 


Product 
quarters 


Selling 
Price 
P.St 


Yield 
P.St. 


Grain 
Rent 
Qrs. 


Money 

Rent 

P.St. 


Rate of 

Surplus 

Profit 


B 
C 
D 


1 
1 
1 


2^+21^ 
2^+2^ 


1 
1 
1 


2+1^= 3^ 
3+2 = 5 

4+31^= 7% 


15/7 

1 5/7 

15/7 


6 

8 4/7 
12 6/7 




11/2 
4 




2 4/7 
6 6/7 




51 2/5% 
137 1/5% 


Totals 


3 


15 




16 




27 3/7 


5 1/2 


9 3/7 


Average 
94 3/10 



Here the rate of productivity of the additional capitals is 
decreasing, and the decrease is different upon different soils, 
while the regulating price of production has fallen from 3 
pounds sterling to ly pounds sterling. The investment of 
capital has risen by one-half, from 10 pounds sterling to 15 
pounds sterling. The money rent has fallen by almost one- 
half, from 18 pounds sterling to 9y pounds sterling, while 
the grain rent has fallen only by one-twelfth, from 6 quarters 
to 5^ quarters. The total product has risen from 10 to 16, 
or by 160%. The grain rent constitutes a little more than 
one-third of the total product. The advanced capital has 
a ratio of 15 to 9 y to the money rent, whereas formerly 
this ratio was 10 to 18. 



Differential Rent 11. Second Case. 821 

III. The Rate of Productivity of the Additional Capitals 

Increases. 

This differs from Case I in the beginning of this chapter, 
in which the price of production falls while the rate of 
productivity remains the same, merely by the fact that soil 
A is thrown more quickly out of competition, if an increase 
of the product is required to effect this. 

This., may work its, effects differently, according to the 
distribution of the investments over the various soils, no mat- 
ter whether productivity be rising or falling. In proportion 
as these different effects balance the differences, or accentuate 
them, the differential rent of the better soils, and with it the 
total rental, will fall or rise, as we have seen in discussing 
differential rent 'No. I. For the rest, everything depends 
upon the size of the area and of the capital, which are 
thrown out of competition together with soil A, and upon the 
relative advance of capital required with a rising productivity 
for the purpose of supplying the capital which is to cover the 
demand. 

The only point which it is worth while to analyse here, aod 
which alone carries us back to the investigation of the way 
in which this differential profit is converted into differential 
rent, is the following: 

In the first case, in which the price of production remains 
the same, the additional capital which may be invested in 
the soil A is immaterial for the differential rent as such, 
since this soil A does not yield any rent now any more than 
it did before, the price of its product remains the same 
and continues to regulate the market. 

In the second case of Variant No. I, in which the price 
of production falls while the rate of productivity remains 
the same, soil A will necessarily be thrown out, and still 
more so in Variant No. II, in which both the price and 
production and the rate of productivity fall, since otherwise 
the additional capital upon soil A would have to raise the 
price of production. But here, in Variant ISTo. Ill of the 
second case, in which the price of production falls, because 



822 



Capitalist Production. 



the productivity of the additional capital rises, this additional 
capital may eventually be invested upon the soil K as well 
as upon the better soils. 

We will assume that an additional capital of 2-| poimds 
sterling, when invested upon the soil A, produces 1^ quarter 
instead of 1 quarter. 

Tahle VL 



m 


U 

< 


Capital 
F.St. 


Profit 
P. St. 


Cost of 

Prod'n 

P.St 


Product 
Qrs. 


Selling 
Price 
P.St. 


Yield 
P.St. 


Rent 


Rate of 

Surplus 
Profit 


o 


Qrs. 


P.St. 


A 
B 
C 
D 


1 

1 
1 

1 


21^+2^= 5 

21^+21^= 5 
2H+2M= 5 


1 

1 
1 
1 


6 
6 
6 
6 


1+11 5=21. 5 

2+2 2/5=4 2 5 
3+33/5=6 3/5 
4+4 4 '5=8 4 5 


2 8/11 
2 8/11 
2 8/11 
2 8/11 


6 
12 

18 
24 




2 1/5 
4 2/5 
6 3/5 



6 
12 

18 




120% 
240% 
360% 


T'ls 


4 


20 


4 


24 


22 




60 


131/5 


36 


AvTage 
240% 



This Table VI should be compared with both Basic Tables 
I and Table II, in which the double investment of capital is 
combined with a constant productivity proportional to the in- 
vestment of capital. 

According to our assumption the regulating price of pro- 
duction falls. If it were to remain constant, at 3 pounds 
sterling, then the worst soil which used to pay no rent with 
an investment of 2^ pounds sterling, would then yield a 
rent, although no worse soil would have been drawn into 
cultivation. This would have been accomplished by increas- 
ing the productivity of this soil, but only for a part, not for 
the original capital invested in it. The first 3 pounds ster- 
ling of cost of production bring 1 quarter; the second bring 
1^ quarter ; but the entire product of 2^ quarters is now sold 
at its average price. 

Since the rate of productivity increases with the additional 
investment of capital, this implies an improvement. This 
may consist of a general increase of the capital per acre (more 
fertilizer, more mechanical labor, etc.), or it may be due ex- 
clusively to tliis additional investment that any difference 
in the quality and productiveness of the investment is brought 
about. In both cases the investment of 5 pounds sterling of 
capital per acre brings forth a product of 2^ quarters, whereas 



Differential Rent II. Second Case. 823 

the investment of one-Half of this capital, or 21 pounds ster- 
ling, brought forth a product of only 1 quarter. The product 
of the soil A, leaving aside the question of transient market 
conditions, could not continue to be sold at a higher price of 
production instead of at the new average price unless a con- 
siderable area of the class A would remain under cultivation 
with a capital of only 2^ pounds sterling. But as soon as 
the new scale of 5 pounds sterling of capital per acre would 
become universal, and with it an improvement of cultivation, 
the regulating price of production would have to fall to 2 8-11 
pounds sterling. The difference between the two portions of 
capital would disappear, and in that case the cultivation of 
one acre of soil A with a capital of only 2^ pounds sterling 
would be abnormal, would not correspond to the new condi- 
tions of production. It would then no longer be a difference 
between the yields of different portions of capital upon the 
same acre, but between a sufficient and an insufficient invest- 
ment of capital per acre. This shows, 1), that an insuffi- 
cient capital in the hands of a large number of capitalist 
farmers (it must be a large number, for a, small number would 
simply be compelled to sell below their price of production) 
produces the same effect as a differentiation of soils in a de- 
scending line. The inferior cultivation upon inferior soil 
increases the rent upon the superior soils ; it may even create 
a rent upon better cultivated soil of the inferior kind, which 
would otherwise yield no rent. It shows, 2), that differen- 
tial rent, to the extent that it arises from successive invest- 
ments of capital in the same total area, resolves itself in real- 
ity into an average, in which the effects of the different in- 
vestments of capital are no longer visible and distinguishable, 
so that the worst soil does not yield any rent, but rather, a), 
the average price of the total product of, say, one acre of A 
is made the new regulating price, and, b), the effects of the 
different investments of capital appear as changes in the total 
quantity of capital per acre,, which is required under the new 
conditions for the adequate cultivation of the soil, and thus 
the individual successions of invested capital as well as their 
respective effects are indistinguishably amalgamated. It is 



824 Capitalist Production. 

the same with the individual differential rents of- the superior 
kinds of soil. In every case they are determined by the dif- 
ference of the average products of the various soils, compared 
to the product of the worst soil, with the increase of capital 
which has become the normal one. 

ISTo soil yields any product without an investment of cap- 
ital. Even in the case of simple differential rent, or differen- 
tial rent 'No. 1, some capital must be invested. When we say 
that one acre of class A, which regulates the price of produc- 
tion, gives so and so much of a product at that and that price, 
and that the superior soils B, C and D yield so much differ- 
ential product and so much money rent at the regulating- 
price of production, it is always understood that a certain 
amount of capital is invested in A which is normal under tho 
prevailing conditions. In the same way a certain minimum 
capital is required for every individual line of industry, in 
order that commodities may be produced at their price of pro- 
duction. 

If this minimum^ is altered in consequence of successive in- 
vestments of capital which are accompanied by improvements, 
it is done gradually. So long as a certain number of acres, 
say, of A, do not receive this additional first capital, a rent 
is created upon the better cultivated portions of A by the un- 
altered price of production, and the rent of all superior soils, 
such as B, C, D, is raised. But as soon as the new method of 
cultivation has become general enough to be the normal one, 
the price of production falls; the rent of the superior soils 
declines then, and that portion of the soil A, which does not 
enjoy the normal running capital, must sell its product below 
its individual price of production, and therefore below the 
average profit. 

In the case of a falling price of production this happens 
also, even assuming the productivity of the additional cap- 
ital to be decreasing, as soon as the required total product is 
supplied in consequence of increased investments of capital 
by the superior classes of soil, so that the running capital is 
withdrawn, say, from A and A does not compete any longer 
in the production of this one staple, say wheat. The quan- 



Differential Rent II. Second Case. 825 

tity of capital, which is now required on an average as an 
investment upon the new regulating soil, B, is now consid- 
ered the normal one ; and when we speak of the different fer- 
tility of the soils, it is understood that this new normal 
quantity of capital is employed per acre. 

On the other hand, it is evident that this average invest- 
ment of capital, for instance 8 pounds sterling per acre in 
England before 1848, and 12 pounds sterling after that year, 
will form the standard in the making of leases for land. For 
any capitalist farmer spending more than that the surplus 
profit does not assume the form of rent during the time of 
his contract. Whether this takes place after the expiration 
of his contract, will depend upon the competition of the cap- 
italist farmers, who are in a position to make the same extra 
advance. We are not speaking here of such permanent im- 
provements of the soil as continue to guarantee an increased 
product with the same or with even a decreasing investment 
of capital. Such improvements, although products of cap- 
ital, have the same effect as the natural differences of quality 
of the land. 

We see, then, that an element must be considered in the 
case of differential rent ISTo. II, which does not appear in dif- 
ferential rent ITo. I as such, since this last rent may continue 
independently of any change in the normal investment of 
capital per acre. It is on one hand the obliteration of the 
results of different investments of capital upon the regulating 
soil A, the product of which now appears simply as a normal 
average product per acre. It is on the other hand the change 
in the average minimum, or in the average magnitude of in- 
vested capital per acre, so that this change presents itself as 
a quality of the soil. It is finally the difference in the man- 
ner of transforming surplus profit into the form of rent. 

Table VI shows furthermore, compared with Tables I and 
II, that the grain has increased more than double as compared 
to I, and by 1^ quarters as compared to II ; while the money 
rent has doubled as compared to I, but has not changed as 
compared with II. It would have increased considerably, if 
(other conditions remaining the same) the additional capital 



826 



Capitalist Production. 



had been placed more upon the superio.r soils, or if the effects 
of the addition of capital to A had been less appreciable, so 
that the regulating average price of the quarter from A had 
stood higher. 

If the increase of productivity by means of additional cap- 
ital should produce different results upon different soils, it 
would cause a change in their differential rents. 

At any rate v^e have demonstrated, that the rent per acre, 
for instance with a doubled capital, may not only be doubled, 
but more than doubled, while the price of production is fall- 
ing in consequence of an increased rate of productivity of 
the additional capitals (as soon as the productivity grows at 
a greater rate than the advance of capital). But it may also 
fall, if the price of production should fall much lower as a 
result of a more rapid increase of productivity upon the 
soil A. 

Let us assume that the additional investments of capital, 
for instance upon B and C, do not increase the productivity 
as much as they do upon A, so that the proportional differ- 
ences would decrease for B and C, and the increase of the 
product did not make up for the fall in price, then, compared 
to Table II, the rent upon D would rise, and would fall upon 
B and C: 

Table VI a. 



Soils 


Acres 


Capital 
P.St. 


Profit 


Product per 

Acre 

quarters 


Selling 
Price 
P St. 


Yield 
P.St. 


Grain 
Rent 
Qrs. 


Money 
Rent 
P.St. 


A 
B 
C 
D 


1 
1 
1 

1 


2^+2x^= 5 
2^+2^= 5 
2^+21^= 5 
2y2+2%= 5 


1 
1 
1 

1 


1+3=4 

2+ 2^= 4% 

3+ 5 r= 8 

4 + 12 =16 


1% 
1^ 

1^ 


6 

6% 
12 
24 




4^ 
12 




18 


Totals 


4 


20 




S2y, 






16% 


fHH 



Finally, the money rent would rise, if more additional cap- 
ital were invested upon the superior soils under the same pro- 
portional increase of fertility than upon A, or if the additional 
investments of capital upon the superior soils worked with 
an increasing rate of productivity. In both cases the differ- 
ences would increase. 

The money rent falls, when the improvement due to addi- 



Differential Rent II. Second Case. 827 

tional investments of capital which reduces the differences all 
over, or in part, affects A more than B and C It falls so 
much the more, the less the productivity of the superior soils 
increases. It depends upon the proportion of inequality in 
the effects, whether the grain rent shall rise, fall, or remain 
stationary. 

The money rent rises, and so does the grain rent, assuming 
the proportional difference in the additional fertility of the 
different soils to remain unaltered, when more capital is 
added to the rent paying soils than to the rentless soil A, and 
more capital placed upon the soils with high than those with 
low rents, or when the fertility, assuming the same additional 
capital to be used, increases more upon the better and best 
soils than upon A, and at that in proportion as this increase 
in fertility is greater upon the better classes of soil than upor„ 
the lesser ones. 

But under all circumstances the rent rises relatively, when 
the increased productive power is a result of an addition of 
capital, and not merely a result of increased fertility with an 
unaltered investment of capital. This is the absolute point of 
view, which shows that here, as in former cases, the rent and 
the increased rent per acre (as in the case of differential rent I 
upon the entire cultivated area — the amount of the 
average rental) are a result of an increased investment 
of capital in the soil, no matter whether this capital does 
its work with a constant rate of productivity at constant or 
decreasing prices, or with a decreasing rate of productivity 
at constant or falling prices, or with an increasing rate of pro- 
ductivity at falling prices. For our assumption of a constant 
price with a constant, falling, or rising rate of productivity 
of the additional capitals, and of a falling price with a con- 
stant, falling, or rising rate of productivity, resolves itself 
into a constant rate of productivity of the additional capital 
at constant or falling prices, a falling rate of productivity 
at constant or falling prices, and a rising rate of productiv- 
ity at constant and falling prices. Although the rent may 
remain stationary or may fall in all these cases, it would fall 
more, if the additional investment of capital, other circum- 



828 Capitalist Production. 

stances remaining the same; were not a prerequisite of an 
increased fertility. An addition of capital, then, is always 
the cause of the relative magnitude of this rent, although it 
may have decreased absolutely. 



CHAPTER XLIII. 

DIFFEKEIirTIAL RE]SrT NO. II. THIKD CASE : RISING PRICE OF 

PRODUCTION. 

[A RISING price of production presupposes that the produc- 
tivity of the least productive quality of land, which pays no 
rent, decreases. The regulating price of production cannot 
rise above 3 pounds sterling per quarter, unless the 2^ pounds 
sterling invested in soil A produce less than one-quarter, or 
the 5 pounds sterling less than two-quarters, or unless, even 
inferior soil than A has to be taken under cultivation. 

If the productivity of the second investment of capital 
should remain the same, this would be possible only in the case 
that the productivity of the first investment of capital would 
have decreased. This case occurs often enough. It happens, 
for instance, when the top soil, exhausted and superficially 
plowed, produces inferior crops with the old style of cultiva- 
tion, and when the subsoil, thrown up by deeper plowing, 
produces better crops than formerly under a more rational 
treatment. But strictly speaking this special case does not 
belong here. The falling off in the productivity of the first 
investment of 2-J pounds sterling implies for the superior 
soils, even when conditions with them should be analogous, a 
decrease of the differential rent I^o. I ; but here we are con- 
sidering only differential rent !Ro. II. Since the present 
special case cannot occur without the previous existence oi 
differential rent IsTo. II, but represents in fact a reaction of 
a certain modification of differential rent IN'o. I upon 'No. II, 
we will give an illustration of it. 



Differential Rent II. Third Case. 
TABLE VII. 



829 



jn 

'0 

tn 


EO 



< 


1 « . 

►So 




a- 


c*: 
m • 

t.(V 


Product 
Qrs. 




2^ 

.2Ph 


CO m iH 

5«a 






A 
B 
C 
D 


1 
1 
1 

1 


2^+25^ 
2^+2J^ 
2j^+2i^ 


1 
1 
1 

1 


6 
6 
6 
6 


1 +2K=^ 3^ 
2+5=7 


3 3/7 6 
3 3/7 12 
8 3/7 18 
3 3/7 24 




3% 
5Ji 



6 

12 
18 




120% 
240% 
360% 


T'tl 




20 






17^ 




60 


lOJ^ 


36 


Av'rage 
240% 



The money rent, and the yield in money, are the same as 
in Table II. The increased regulating price of production 
makes up exactly for what has been lost in the quantity of 
the product ; since both of them vary in an inverse proportion, 
it is a matter of course that the product of both will remain 
the same. 

In the above case we had assumed that the productive power 
of the second investment of capital was higher than the origi- 
nal productivity of the first investment. The matter remains 
the same, if we assume that the second investment has only 
the same productivity as that of the first, as shown in the 
following : 

TABLE VIII. 



'0 


m 

< 


Invested 
Capital 
P.St. 


■45 . 


a 
UPh 


Product 
Qrs. 


(/2Ph 


Sol 


■Sgi2 
SP^Oi 







A 
B 
C 
D 


1 
1 
1 
1 


2%+2%= 5 
2^+2K= 5 
2y2+2%= 5 
2%+2%=^ 5 


1 
1 
1 

1 


6 
6 
6 
6 


y,+l= 1^ 

1 +2= 3 
lK+3- 4^ 

2 +4= 6 


4 
4 
4 
4 


6 
12 

18 
24 




4K 



6 
12 

18 




120% 
240% 
■ 360% 






20 






15 




60 


9 


36 


Average 
240% 



Here likewise the rising of the price of production at the 
same ratio fully compensates for the decrease in the produc- 
tivity both in the yield and rent in money. 

The third case shows itself in its pure form only when the 
second investment of capital declines in its productivity, 
while that of the first remains constant, as assumed everv- 



830 



Capitalist Production. 



where in tlie first and second cases. Here differential rent 
'No. I is not touched, the change affects only that part which 
arises from differential rent No. II. We give below two il- 
lustrations: In the first we assume that the productivity of 
the second investment of capital has been reduced by one-half, 
in the second by one-fourth. 

TABLE IX. 





10 


Invested 
Capital 


US . 


"0 Sin 


Product 
Qrs. 


^ in 




•E^£ 


£'^t^ 


"o 
■"■?! 






P.St. 


pOh 


opO. 


^f,^ 


a>P-i 


£SO 


gg^- 


to 4) 


m 


< 




CL, 


UCL, 




cJ^P-i 


>< 


'Jtfl 


Sp:! 


«Qi 


A 


1 


2 1/2+2 1/2= 5 


1 


6 


1+ 1/2= 1 1/2 


4 


6 











H 


1 


2 1/2+2 1/2= 5 


1 


6 


2+1 = 3 


4 


12 


1 1/2 


6 


120% 


t; 


1 


2 1/2+2 1/2= 5 


1 


6 


3+1 1/2= 4 1/2 


4 


18 


3 


12 


240% 


D 


1 


21/2+21/2= 5 


1 


6 


4+2 = 6 


4 


a4 


41/2 


18 


360% 


T'tl 




20 






15 




60 






Av'rage 
240% 



Table IX is the same as Table VIII, only that the decrease 
in productivity in VIII falls upon the first investment of 
capital, and in IX upon the second investment of capital. 

TABLE X. 



<n 

1 


m 


< 


Invested 
Capital 
P.St, 


CM 


a 
ain 


Product 
Qrs. 




T3^ 








A 
B 
C 
D 


1 
1 
1 

1 


2 1/2+2 1/2= 5 
2 1/2+2 1/2= 5 
2 1/2+2 1/2= 5 
2 1/2+2 1/2= 5 


1 
1 

1 
1 


6 
6 
6 
6 


1+ 1/4= 1 1'4 
2+ 1/2= 2 12 
3+ 8/i= 3 3/4 
4 + 1 = 5 


445 

4 4/5 
44/5 
4 4/5 


6 
12 
18 
24 




11/4 
21/2 
3 3/4 



6 
12 

18 




120% 
2^% 

360% 


T'tl 




20 




24 


12 1/2 




60 


71/2 




Av'rage 
210% 



In this table, likewise, the total yield, the money rental, 
and the rate of rent remain the same as in Tables II, VII and 
VIII, because the product and the selling price have once 
more varied in an inverse proportion, while the invested cap- 
ital has remained the same. 

But how do matters stand in the other case, which is pos- 
sible with a rising price of production, namely in the case that 
a soil, which so far was too poor to be cultivated, is taken 
under cultivation ? 



Differential Rent II. Third Case. 



831 



Let us suppose that such a soil, which we will designate by 
a, is entering into competition. Then the hitherto rentless 
soil A would yield a rent, and the foregoing Tables VII, 
yill and X would assunle the following forms: 

TABLE Vila. 



1 


CO 
V 



< 


Capital 
P.St. 


« . 

Pl, 


3C/2 
OP-i 


Product 
Qrs. 


(/3P-1 




2 So 




m 
g 


a 
A 
B 
C 
D 




5 

2 1/2+2 1/2 
2 1/2+2 1/2 
2 12+2 1/2 
2 1/2+2 1/2 




6 
6 
6 
6 
6 


15^ 

^+1J<= \% 
1 +2^= 314 
15^+3M= 55< 
2+5=7 


4 
4 
4 
4 
4 


6 

7 
14 
21 

28 


°l/4 
2 

3 3 4 
5 1,2 




1 

8 
15 
22 




1 
1+7 
1+2x7 

i+sx' 


T'ls 








30 


19 




76 


11 1/2 







TABLE Villa, 



'0 


< 


Capital 
P.St. 


s 


UP-i 


Product 
Qrs. 


be *j 

CD ^-"^ 






3? (Ji 

ggo; 


Increase 


a 
A 
B 
C 
D 




5 

2^+25^ 

2^+21^ 
2^+2^ 
2J^+2J^ 




6 
6 
6 
6 
6 


1 + J^= 1^ 
1+2=3 

1^+3 = 4^ 
2+4=6 


4 4/5 
4 4/5 
4 4/5 
4 4 5 
4 4 5 


6 

7 1/5 
14 2/5 
21 3/5 
28 4/5 




1/4 

1 3/4 

2 1/4 
4 3/4 




1 1/5 

8 2 5 

15 3 5 

22 4/5 




1 1/5 

1 1/5+7 1/5 
1 1/5+2x7 1/5 
1 1/5+3X7 1/5 


T'ls 








30 


16K 




78 


9 


48 





TABLE Xa. 











a 












0) 






Capital 


^ 


acJi 


Product 


c«^ 


n-1^ 




o^W 


n 


_M 


(U 


P.St. 





§2^ 


Qrs. 


S-^P.- 


!2Ph' 


sSo 


of>^ 


g 


Cfi 


f. 




i 


Ufc 




(^Qh 


ix 


OP^ 


^^ 




a 




5 




6 


1% 


5^ 


6 











A 




2 1/2+2 1/2 




6 


1+ K= IK 


5Ji 


6% 


% 


% 


% 


H 




2 1/2+2 1/2 




6 


2+ ^= 2^ 


5Ji 


IZVi 


m 


v/3 


%+^% 


C 




2 1/2+2 1/2 




6 


3+ M= 3Ji 


5>S 


20 


2^8 


14 


%+'iX^% 


I) 




2 1/2+2 1/2 




6 


4+1 = 5 


5J^ 


26?^ 


3^8 


20?i 


?|+3X6?^ 


T'ls 








30 


13^8 




72?^ 


8 


42?i 





By the interpolation of soil a there arises a new differential 
rent I^o. I. Upon this new basis differential rent No. II 
likewise develops in an altered form. The soil a has a differ- 
ent fertility in every one of the above three Tables. The 



832 Capitalist Production. 

series of successively increasing productivities begins only 
with soil A. The series of rising rents corresponds to this. 
The rent of the least rent producing soil forms a constant 
magnitude, which is simply added to all higher rents; only 
after the deduction of this constant magnitude does the series 
of differences clearly appear among the higher rents, and so 
does its parallelism with the succession of fertilities of the 
various kinds of soil. In all Tables, the fertilities from A 
to T> have a proportion of 1 : 2 : 3 : 4, and the rents are cor- 
respondingly in Vila asl :1 + 7:1 + 2XT:1 + 3X'J', 
in Villa as li : li + 71 : 11 : 2 X H : li + 3 X VI, and in 
Xa as f : f + 6f : § + 2 X 6f : f + 3 X 6f . In brief, if 
the rent of A ^ n, and the rent of the soil of next higher fer- 
tility = n -j- m, then the series is as n : n -j- m : n -f- 2m : n 
+ 3m, etc.— r. E.] 



[Since the foregoing third case had not been elaborated in 
the manuscript, only its title being there, the editor had to 
supplement the work as he did above. It remains now to 
draw the general conclusions following from the entire fore- 
going analysis of differential rent in its three principal cases 
and nine subcases. The illustrations chosen in the manu- 
script do not suit this purpose very well. In the first place, 
they compare pieces of land, equal portions of which have 
yields at the ratio of 1:2:3:4. These are differences, 
which strongly exaggerate and which lead to utterly forced 
results in the further development of the assumptions and 
calculations made upon this basis. In the second place, these 
proportions create a wrong impression. If degrees of fertility 
of the proportion 1:2:3:4, etc., produce rents in a series of 
0:1:2:3:4, etc., one feels tempted to derive the second 
series from the first and to explain the duplication, triplica- 
tion, etc., of the rents out of the duplication, triplication, etc., 
of the total yields. But this would be wholly incorrect. The 
rents show proportions like that of : 1 : 2 : 3 : 4 even when 
the degrees of fertility are proportioned as n : n + 1 • 11 4~ 



Differential Rent II. Third Case. 833 

2 : n -f- 3 : n -[- 4 ; the rents are not proportioned as the de- 
grees of fertility, they are rather proportioned as the differ- 
ences of fertility, beginning with the rentless soil as a zero 
point. 

The tables of the original had to be given for the illustra- 
tion of the text. But in order to obtain a suitable basis for 
the following results of our analysis, I present below a new 
series of tables, in which the yields are indicated in bushels 
(^ quarter or 36.35 liters) and shillings. 

The first of these tables, Table XI, corresponds to the 
former Table I. It shows the yields and rents for five qual- 
ities of soil, A to E, with a first investment of a capital of 
50 shillings, which makes a profit of 10 shillings, so that the 
total cost of production per acre is 60 shillings. The yields 
in grain are placed at low figures, 10, 12, 14, 16, 18 bushels 
per acre. The resulting regulating price of production is 6 
shillings per bushel. 

The following 13 tables correspond to the three cases of 
differential rent 'No. II, with an additional investment of a 
capital of 50 shillings per acre upon the same soil, with a 
constant, falling and rising price of production. Every one 
of these cases, again, is represented as it turns out, 1) with 
a constant, 2) with a falling, 3) with a rising productivity 
of the second investment of capital as compared to the first. 
This results furthermore in a few other cases, which are pre- 
sented separately. 

In case I, with a constant price of production, we have : 
Variant ISTo. 1 : The productivity of the second investment of 

capital remains the same (Table XII.) 
Variant ISTo. 2: The productivity declines. This can take 
place only when soil A receives no second investment 
of capital, and it may take place in such a way that 

a) the soil B likewise produces no rent (Table XIII), or, 

b) the soil B does not lose all rent (Table XIV). 
Variant ISTo. 3: The productivity increases. (Table XV.) 

This case likewise excludes a second investment of 
capital upon soil A. 

3A 



834 Capitalist Production. 

In case II, with a falling price of production, we have : 
Variant ISTo, 1 : The productivity of the second investment 

of capital remains the same (Table XVI). 
Variant 'No. 2: The productivity declines (Table XVII). 
These two variants are conditioned upon the throw- 
ing of soil A out of competition, and soil B producing 
no rent and regulating the price of production. 
Variant ISTo. 3: The productivity increases (Table XVIII). 
In this case the soil A remains the regulator. 
In case III, with a rising price of production, two even- 
tualities are possible; soil A may remain without rent and 
regulate the price, or, an inferior class of soil than A enters 
into competition and regulates the price, in which case A pro- 
duces a rent. 

First eventuality: Soil A remains the regulator. 
Variant No. 1 : The productivity of the second investment 
remains the same (Table XIX). This will happen 
under the conditions assumed by us only when the 
productivity of the first investment decreases. 
Variant Xo. 2 : The productivity of the second investment 
decreases (Table XX). This does not exclude the 
possibility that the first investment may retain the 
same productivity. 
Variant Xo. 3 : The productivity of the second investment 
(Table XIX) increases; this, again, presupposes a 
falling productivity of the first investment. 
Second eventuality : An inferior quality of soil (designated 
as a) enters into competition; soil A yields a rent. 
Variant Xo. 1 : The productivity of the second investment 

remains the same (Table XXII). 
Variant Xo. 2: The productivity declines (Table XXIII). 
Variant Xo. 3: The productivity increases (Table XXIV). 
These three variants appear under the general conditions 
of the problem and require no further remarks. 
We herewith produce the Tables. 



Differential Rent II. Third Case. 



835 







Table 


XL 








Soils 


Cost of 
Production 


Product 
Bushels 


CD - 

a 


Yield 
Shillings 


Rent 
Shillings 


Increase of 
Rent 


A 
B 
C 
D 

E 


60 
60 
60 
60 
60 


10 
12 
14 
16 

18 


6 
6 
6 
6 
6 


60 

72 
84 
96 
108 




12 
24 
36 

48 



12 

2X12 
3X12 
4X12 


Total 










120 


10X12 



•When a second investment is placed upon the same soil, we 
have the following eventualities: 

First Case: The Price of production remains unaltered. 
Variant 'No. 1 : The productivity of the second investment 
remains the same. 

Table XII. 



Soils 


Cost of 
Production 


Product 
Bushels 


Ph 
e 

1 


Yield 
Shillings 


Rent 

Shillings 


Increase 
of Rent 


A 
B 
C 
D 
E 


60+60= 120 
60+60= 120 
60+60= 120 
60+60= 120 
60+60= 120 


10+10= 20 
12+12= 24 
14+14= 28 
16+16= 32 
18+18= 36 


6 
6 
6 
6 
6 


120 

144 
168 
192 
216 



24 

48 
72 
96 



24 

2X24 
3X24 
4X24 


Total 










240 


10X24 



Variant No. 2 : The productivity of the second investment 
of capital declines; soil A receives no second invest- 
ment, 
a) If soil B ceases to yield a rent. 

Table XIII. 



Soils 


Cost of 
Production 


Product 
Bushels 




Yield 
Shillings 


Rent 

Shillings 


Increase 
of Rent 


A 
B 
C 
D 
E 


60 
60+60= 120 
60+60= 120 
60+60= 120 
60+60= 120 


10 

12+8 =20 
14+ 9^=23J^ 
16+105^=26?^ 
18+20 =38 


6 
6 

6 
6 
6 


60 
120 
140 
160 
ISO 




20 
40 
60 






20 

2X20 
3X20 


Total 










120 


6X20 



b) If soil B does not lose all the rent. 



836 



Capitalist Production. 
Table XIV. 



Soils 


Cost of 
Production 


Product 
Bushels 


Selling 
Price 
Shillings 


a 
>< 




Increase of 
Rent 


A 
B 
C 
D 
E 


60 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


10 
12+ 9 =21 

14+10^=241^ 
16+12 =28 
18+13^=31^ 


6 
6 
6 
6 
6 


60 
126 
147 
168 
189 



6 

27 
48 
69 



6 

6+21 
6+2X21 
6+3x21 


Total 










150 


4X6+6X21 



Variant No. 3 : The productivity of the second investment 
of capital increases ; no second investment upon soil A. 

Table XV. 



Soils 


Cost of 
Production 


Product 

Bushels 


bii 


Si 
c 


Rent 


Increase of 
Rent 


A 
B 
C 
D 
E 


60 
60+60^:120 
60+60=120 
60+60=120 
60+60=120 


10 
12+15 =27 

14+1754=31^ 
16+20 =36 
18 + 2214=4014 


6 
6 
6 
6 
6 


60 
162 
189 
216 
243 



42 
69 
96 
123 




42 

42+27 

42+2x27 

42+3X27 


Total 










330 


4X42+6X27 



Second Case: The price of production declines. 
Variant ISTo. 1 : The productivity of the second investment 
of capital remains the same. Soil A is thrown out of 
competition, soil B loses its rent. 

Table XVI. 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 
Price 


Yield 
Shillings 


Rent 
Shillings 


Increase 
of Rent 


B 
C 
D 
E 


80+60=120 
60+60=120 
60+60=120 
60+60=120 


12+12=24 
14+14=28 
16+16=32 
18+18=36 


5 
5 
5 
5 


120 
140 
160 
180 



20 
40 
60 




20 

2X20 

3X20 


Total 










120 


6X20 



Variant iSTo. 2 : The productivity of the second investment 
of capital declines; soil A is thrown out of competi- 
tion, soil B loses its rent. 



Differential Rent II. Third Case. 
Table XVII. 



^37 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 
Price 


Yield 
Shillings 


Rent 

Shillings 


Increase 
of Rent 


B 
C 
D 

E 


60+60=120 
60+60=120 
60+60=120 
60+60=120 


12+ 9 =21 
U+10>£=24J^ 
16+12 =28 
18+13)^=31^ 


5 5/7 
5 5/7 
5 5/7 
5 5/7 


120 
140 
160 
180 



20 
40 
60 




20 

2X20 

3X20 


Total 










120 


6X20 



Variant No. 3 : The productivity of the second investment 
of capital increases; soil A remains in the competi- 
tion. Soil B produces rent. 

Table XVIII. 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 

Price 

Shillings 


Yield 
Shillings 


Rent 
Shillings 


Increase 
of Rent 


A 
B 
C 
D 

E 


60+60=120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


10- 
12H 
14-J 
16- 
18- 


1-15=25 
-18=30 
-21=35 
-24=40 
-27=45 


4 4/5 
4 4/6 
4 4,'5 
4 4/5 
4 4/5 


120 
144 
168 
192 
216 




24 

48 
72 
96 



24 

2X24 
3X24 
4X24 


Total 










240 


10X24 



Third Case: The price of production rises. 

A) If soil A remains v^ithout rent and continues to reg- 
ulate the price. 
Variant No. 1 : The productivity of the second investment 
of capital remains the same; this implies a decreasing 
productivity of the first investment of capital. 

Table XIX. 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 
Price 


Yield 
Shillings 


Rent 
Shillings 


Increase 
of Rent 


A 
B 
C 
D 

E 


60+60=120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


5+12)^ = 17}4 
6+15 =21 
7+17)^=24)^ 
8+20 =28 
9+22)^=31 J^ 


6 6/7 
6 6/7 
6 6/7 
6 6/7 
6 6/7 


120 
144 
168 
192 
216 




24 

48 
72 
96 



24 

2X24 
3X24 
4X24 


Total 










240 


10X24 



Variant 'No. 2: The productivity of the second investment 
of capital decreases; this does not exclude a constant 
productivity of the first investment. 



838 



Capitalist Production. 



Table XX. 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 

Price 

Shillings 


Yield 

Shillings 


Rent 

Shillings 


Increase 
of Rent 


A 
B 
C 
D 
E 


60+60=120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


lOH 
12- 
14- 

16- 

18- 


1-5=15 

-6=18 
-7=21 

-8=24 
-9=27 


8 
8 
8 
8 
8 


120 
144 
168 
192 
216 



24 
48 
72 
96 



24 

2X24 
3X24 
4X24 


Total 










240 


10X24 



Variant ISTo. 3 : The productivity of the second investment 
of capital rises, which implies, under the assumed con- 
ditions, a declining productivity of the first invest- 
ment. 

Talh XXI. 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 
Price 


Yield; 
Shillings 


Rent 

Shillings 


Increase 
of Rent 


A 
B 
C 
D 
E 


60+60=120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


5+121^=17^ 
6+15 =21 
7+^ 7% =241^ 
8+20 =28 
9+22>^ = 31J^ 


6 6/7 
6 6/7 
6 6/7 
6 6 7 
6 6/7 


120 
144 
168 
192 
216 




24 

48 
72 
96 




24 

2X24 
3X24 
4X24 


Total 










240 


10X2i 



B) If an inferior soil (designated as a) becomes the 
regulator of prices and soil A produces a rent. This 
admits of a constant productivity of the second invest- 
ment in the case of all variants. 
Variant No. 1: The productivity of the second investment 
of capital remains the same. 

Tahle XXII. 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 
Price 


Yield 
Shillings 


Rent 
Shillings 


Increase 
of Rent 


a 
A 
B 
C 
D 
E 


120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


16 
10+10=20 
12+12=24 
14+14=28 
16+10=32 
18-1-18=36 


7^ 
1% 
75^ 
7^ 
7^ 
7^ 


120 
150 
180 
210 
240 
270 



80 
60 
90 
120 
150 



30 
2X30 
3X30 
4X30 
6X30 


Total 










450 


15X30 



Variant No. 2 : The productivity of the second investment 
of capital declines. 



Differential Rent II. ' Third Case. 
Tahle XXIII. 



839 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 
Price 


Yield 
Shillings 


Rent 

Shillings 


Increase 
of Rent 


a 
A 
B 
C 
D 
E 


120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


15 
10+ T^=17K 
12+9 =21 
14+10^=24^ 
16+12 =28 
18+13^=31}^ 


8 
8 
8 
8 

8 
8 


120 
140 
168 
196 
224 
252 



20 

48 
76 
104 
132 



20 

20X28 
20+2X28 
20+3X28 
20+4x28 


Total 










380 


5X20+10X28 



Variant No. 3 : The productivity of the second investment 
increases. 

Tahle XXIV. 



Soils 


Cost of Production 
Shillings 


Product 
Bushels 


Selling 
Price 


Yield 
Shillings 


Rent 

Shillings 


Increase of 
Rent 


a 
A 
B 
C 
D 
E 


120 
60+60=130 
60+60=120 
60+60=120 
60+60=120 
60+60=120 


lOH 
12- 
14- 
16- 

18- 


16 
hl2J^=22J^ 
-15 =27 
-17^=311^ 
-20 =36 
-221^=405^ 




120 

168^ 

2021^ 

236 }i 

270 

303% 




48% 
82^ 

1165^ 

150 

183% 



15+33% 
15+2X33% 
15+3X33% 
15+4X33% 
15+5X33% 


Total 










381K 


5X15+15X33% 



These Tables lead to the following conclusions : 

In the iirst place thej show that the series of rents main- 
tains the same proportions as the series of degrees of fertility, 
taking the rentless regulating soil as the zero point. IsTot 
the absolute yields, but only the differences in yield are the 
determining elements of rent. Whether the different kinds 
of soil produce 1, 2, 3, 4, 5 bushels, or whether they produce 
11, 12, 13, 14, 15 bushels of yield per acre, the rents are in 
both cases seriatim 0, 1, 2, 3, 4, bushels, or money to that 
amount. 

But the result of our analysis is far more important with 
respect to the total yields of rent with a repeated investment 
of capital upon the same soil. 

In five cases out of the analysed thirteen the total amount 
of the rents is doubled with the duplication of the investment 
of capital; instead of 10 times 12 shillings it becomes 10 
times 24 shillings, or 240 shillings. These cases are: 



840 Capitalist Production. 

Case I, constant price, Variant ]S[o. 1, the increase of pro- 
ductivity remaining the same (Table XII). 

Case II, falling price. Variant No. Ill: increasing expan- 
sion of production (Table XVIII). 

Case III, increasing price, first eventuality, where soil A 
remains the regulator, in all three Variants (Tables XIX, 
XX, and XXI). 

In four cases the rent increases by more than double^ 
namely : 

Case I, Variant Xo. Ill, constant price, increasing expan- 
sion of production (Table XV). The amount of the rent 
rises to 330 shillings. 

Case III, second eventuality, where soil A produces a rent, 
in all three variants (Table XXII, rent 15 times 30 = 450 
shillings ; Table XXIII, rent 5 times 20 plus 10 times 28 = 
380 shillings; Table XXIV, rent 5 times 15 plus 15 times 
33^ = 581^ shillings). 

In one case the rent rises, but not to double the amount 
of the rent produced by the first investment of capital : 

Case I, constant price. Variant II: falling productivity of 
the second investment, under conditions, in which B does not 
wholly lose its rent (Table XIV, rent 4 times 6 plus 6 times 
21 = 150 shillings). 

Finally, it is only in three cases that the total rent, with a 
second investment uj)on all kinds of soil, remains at the same 
level as with the first investment (Table XI) ; these are the 
cases, in which the soil A is thrown out of competition and 
soil B becomes the regulator and pays no rent. In this case 
the rent of B is not only lost, but is also deducted from every 
succeeding link of the rent series. This is the basis of the 
above result. We mean the following cases: 

Case I, Variant II, when the conditions are such that soil 
A is eliminated (Table XIII). The sum of the rent is six 
times twenty, or 10 X 12 = 120, as in Table XI. 

Case II, Variants I and II. Here soil A is necessarily 
eliminated, according to the assumption (Tables XVI and 
XVIT) and the sum of the rent is again 6 X 20 = 10 X 12 
= 120 shillings. 



Differential Rent II. Third Case. 841 

This is to say: In the great majority of all possible cases 
the rent rises, both per acre of the rent paying soils and for 
the total amount, as a result of' an increased investment of 
capital upon the land. Only in three cases out of the thirteen 
analysed cases the total amount of the rent remains unaltered. 
These are the. cases, in which the lowest quality of soil, which 
hitherto paid no rent, drops out of competition and the next 
higher one takes its place and loses its rent. But even in 
these cases do the rents upon the superior soils rise in com- 
parison to the rents due to the first investment. When the 
rent of C falls from 24 to 20, then that of D and E rises from 
36 and 48 respectively to 40 and 60 shillings. 

A fall of the total rents below the level of the first invest- 
ment of capital (Table XI) would be possible only in the 
case that soil B as well as soil A would drop out of competi- 
tion and soil C become regulating and rentless. 

The more capital is applied to a certain soil, and the higher 
the development of agriculture and of civilization in general 
is in a certain country, the more do the rents rise per acre 
and per total amount of rental, and the more immense be- 
comes the tribute paid by society to the great land owners 
in the form of surplus profits — so long as the different soils 
taken under cultivation remain capable of competition. 

This law explains the wonderful vitality of the class of 
great landlords. ISTo social class lives so sumptuously, no 
other claims like it a right to a traditional luxury in keeping 
with its " estate," regardless of where the money for that 
purpose may come from, no other class piles debt upon debt 
as lightheartedly as it. And yet it always lands on its feet — 
thanks to the capital invested by other people in the soil, 
whereby the landlord collects a rent, which stand in no pro- 
portion to the profits to be drawn out of the soil by the capi- 
talist. 

However, the same law also explains, why the vitality of 
the great landlord is gradually exhausted. 

When the English corn taxes were abolished in 1846, the 
English manufacturers believed that they had transformed 
the landowning aristocracy into paupers. Instead of that they 



842 Capitalist Production. 

became riclier than ever. How did that happen ? Very sim- 
ple. In the first place, the renting capitalists were now com- 
pelled bv contract to invest 12 pounds sterling annually in- 
stead of 8 pounds, as heretofore. And in the second place, 
the landlords, being strongly represented also in the Lower 
House, granted to themselves a heavy subsidy for the drainage 
and other j)ermanent improvements of their lands. Since 
no total displacement of the worst soil took place, but at the 
worst a temporary employment of such soil for other pur- 
poses, the rents rose in proportion to the increased investment 
of capital, and the landed aristocracy were better off than ever 
before. 

But everything is perishable. The transoceanic steamboats 
and the railroads of N^orth and South America and India en- 
abled very peculiar masses of land to enter into competition 
upon the European grain markets. There were on the one 
hand the !N^orth American prairies, the Argentine pampas, 
steppes, made fertile for the plow by nature itself, virgin soil, 
which offered rich harvest for years to come even with a 
primitive cultivation and without any fertilization. Then 
there were the lands of the Russian and Indian communes, that 
had to sell a portion of their product, and an increasing one 
at that, for the purpose of obtaining money for the taxes 
wrung from them by the pitiless despotism of the state, very 
often by means of torture. These j)roducts were sold without 
regard to their cost of production, sold at the price offered by 
the dealer, because the peasant had to have money under all 
circumstances when tax paying day came around. And 
against the competition of the virgin prairie soils and of the 
Russian and Indian peasants ground down by taxation, the 
European capitalist farmer and peasant could not stand up 
at the old rents. A portion of the soil of Europe fell definitely 
out of the competition for the raising of grain, the rents fell 
everywhere. Our second case Variant II (falling prices and 
falling productivity of the additional investment of capital) 
became the rule for Europe. This accounts for the woes of 
the landlords from Scotland to Italy, and from Southern 
France to Eastern Prussia. Fortunately all prairie lands 



Analysis of Differential Rent. 843 

have not been taken under cultivation. There are enough of 
them left to ruin all the great landlords of Europe and the 
small ones into the bargain. — F. E.] 



The heads, under which rent is to be analyzed, are the fol- 
lowing : 

A. Differential rent. 

1) Meaning of differential rent. Illustration by 
water power. Transition to real agricultural rent. 

2) Differential rent ]^o, I, arising from different fer- 
tilities of different pieces of land. 

3) Differential rent No. II, arising from successive 
investments of capital upon the same soil. Differ- 
ential rent I*^o. II is to be analysed 

a) with a stationary price of production. 

b) with a falling price of production. 

c) with a rising price of production. 
And furthermore 

d) the transformation of surplus profit into rent. 

4) Influence of this rent upon the rate of profit. 

B. Absolute rent. 

C. The price of land. 

D. Final Eemarks concerning ground rent. 



As the general result of our analysis of differential rent 
we come to the following conclusions : 

1) The formation of surplus profits may take place in 
different ways. On the one hand it may come about by the 
help of differential rent ISTo. I, that is, by an investment of 
the entire agricultural capital upon one soil area consisting 
of soils of different fertilities. Or, it may come about by 
means of differential rent Xo. II, that is by means of the 
varying differential productivity of successive investments of 
capital upon the same soil, which signifies here a greater pro- 
ductivity, say in wheat measured by quarters, than is se- 
cured with the same investment of capital upon the worst 



844 Capitalist Production. 

rentless soil, which regulates the price of production. But 
no matter how these surplus profits may arise, their transfor- 
mation into rents, their transfer from the capitalist farmer to 
the landlord, always presupposes that the various individual 
prices of production represented by the partial products of 
the individual capitals invested in succession (independently 
of the general price of production by which the market is 
regulated) have previously been reduced to an individual 
average price of production. The excess of the general reg- 
ulating price of production of the product of one acre over 
its individual average price, forms and measures the rent per 
acre. In differential rent No. I the differential results may 
be distinguished by themselves, because they take place upon 
differentiated portions of land lying side by side, with an in- 
vestment of capital and a degree of cultivation considered 
normal per acre. In differential rent ISTo. II they must first 
be made distinguishable ; they must in fact be reconverted into 
differential rent ISTo. I, and this cannot take place in any 
other but the indicated way. Take for instance Table III, 
Chapter XLI, 3. 

Soil B gives for the first investment of capital 2| pounds 
sterling 2 quarters per acre, and for the second equally large 
one 1^ quarters; together 3^ quarters upon the same acre. 
These 3| quarters do not show what part of them is a prod- 
uct of the investment of capital No. I and what part a product 
of capital No. II, for they are all grown upon the same soil. 
They are in fact the product of the total capital of 5 pounds 
sterling ; and the actual condition of the matter is that a capi- 
tal of 2^ pounds sterling produced 2 quarters, and a capital 
of 5 pounds sterling produced only 3^ quarters, not 4 quar- 
ters. The case would be just the same, if these 5 pounds 
sterling were producing 4 quarters, so that the proceeds of 
both investments of capital would be the same, or even 5 
quarters, so that the second investment of capital would yield 
a surplus of 1 quarter. The price of production of the first 
2 quarters is 1|- pounds sterling per quarter, and that 
of the second 1-| quarters is 2 pounds sterling per quarter. 
Consequently the 3| quarters together cost 6 pounds sterling. 



Analysis of Differential Rent. 845 

This is tlie individual price of production of the total product, 
and it makes an average of 1 pound and 14-f- shillings per 
quarter, in round iigures If pounds sterling. With the aver- 
age price of production regulated by soil A, namely 3 pounds 
sterling, this makes a surplus profit of 1:^ pounds sterling per 
quarter, and for the total 3^ quarters a surplus profit of 4f 
pounds sterling. With the average price of production of B 
this is represented by about 1^ quarters. In other words, the 
surplus profit of B is represented by an aliquot portion of 
the product of B, by these 1^ quarters, which express the 
rent in terms of grain, and which under the prevailing price 
of production sell at 4| pounds sterling. But on the other 
hand, the surplus product of one acre of B compared to that 
of A is not without ceremony a formation of surplus profit, 
is not offhand a surplus product. According to our assump- 
tion one acre of B produces 3|- quarters, whereas one acre of 
A produces only 1 quarter. The surplus of the product of B 
is, therefore, 2^ quarters, but the surplus product is only 1^ 
quarters; for the capital invested in B is twice that of A, 
and for this reason its cost of production is doubled. If soil 
A should also receive an investment of 5 pounds sterling, and 
the rate of productivity should remain the same, then the 
product would amount to 2 quarters instead of 1 quarter, and 
it would then be seen that the actual surplus product is found, 
not by a comparison of 3^ with 1, but of 3|^ with 2, so that 
it would be only 1| quarter, not 2-J quarters. Furthermore, 
if B should invest a third capital of 2^ pounds sterling, which 
would produce only 1 quarter, so that this quarter would cost 
3 pounds sterling, the same as that of A, then its selling price 
would cover only the cost of production, would yield only 
the average profit, but not a surplus profit, and would not 
offer anything that could be converted into rent. The prod- 
uct per acre of any kind of soil, compared with the product 
per acre of soil A, shows neither whether it is a product of the 
same or of a larger investment of capital, nor whether the 
additional product covers merely the price of production, nor 
whether it is due to a greater productivity of the additional 
capital. 



846 Capitalist Production. 

2) With a decreasing rate of productivity of the additional 
investments of capital, whose limits, so far as the new forma- 
tion of surplus profit is concerned, is that investment of capi- 
tal which just covers the cost of production, in other words, 
which produces one quarter at the same expense as the same 
investment of capital in one acre of soil A, amounting to 3 
jDOunds sterling according to our assumption, we come to the 
following conclusions on the basis of what has gone before: 
That the limit, where the total investment of capital in one 
acre of B would not yield any more rent, is reached when 
the individual average price of production of the product per 
acre of B would rise to the price of production per acre of A. 

If B invests, only such additional capital as pays just the 
price of production, but forms no surplus profit, no rent, 
then this raises only the individual average price of produc- 
tion per quarter, but does not affect the surplus profit, or 
eventually the rent, formed by previous investments of cap- 
ital ? For the average price of production always remains 
under that of A, and when the excess over the price per quar- 
ter decreases, then the number of quarters increases in the 
same ratio, so that the total excess over the price remains un- 
altered. 

In the case assumed, the first two investments of capital of 
5 pounds sterling produce 3^ quarters upon B, which amounts 
to If quarters of rent, at 4-J pounds sterling, according to our 
assum^Dtion. ]^ow, if a third investment of capital of 2f 
pounds sterling is added, which produces only one additional 
quarter, then the total price of production (including a profit 
of 20%) of the 4-| quarters is 9 pounds sterling, so that the 
average price per quarter is 2 pounds sterling. The average 
price of production per quarter upon B has then risen from 
ly pounds sterling to 2 pounds sterling, so that the surplus 
profit per quarter, compared with the regulating price of A, 
has fallen from 1|- pounds sterling to 1 pound sterling. But 
1 X 4f = 4f pounds sterling, just as formerly If X 3f = 
4-| pounds sterling. 



Analysis of Differential Rent. 847 

upon B, and that these investments produce one quarter only 
at its average price of production, then the total product per 
acre would be 6^ quarters, and their cost of production 15 
pounds sterling. The average price of production per quar- 
ter of B would have risen once more, from 1 pound sterling to 
2^3" pound sterling, and the surplus profit per quarter, com- 
pared with the regulating price of production of A, would 
have dropped once more, from 1 pound sterling to ^3 pound 
sterling. But these -^-g- would now have to be calculated upon 
6^ quarters instead of 4|^ quarters. And -^w X 6-| = 1 X 
4| = 4^ pounds sterling. 

The inference from this is, in the first place, that no rais- 
ing of the regulating price of production is necessary under 
these circumstances, in order to make possible additional in- 
vestments of capital even to the point where the additional 
capital ceases wdiolly to produce any surplus profit and yields 
only the average profit. It follows furthermore that the sura 
of the surplus profit per acre remains the same here, no mat- 
ter how much the surplus profit per quarter may decrease ; 
this decrease is always balanced by a corresponding increase 
of the quarters produced per acre. In order that the average 
price of production may rise to the general price of production 
(in this case to 3 pounds sterling for soil B) it is necessary 
that additions should be made to the capital, which must have 
a product of a higher price of production than the regulating 
one of 3 pounds sterling. But we shall see that this does not 
suffice without further ado in order to raise the average price 
of production per quarter of B to the general price of pro- 
duction of 3 pounds sterling. 

Let us assume that soil B produced. 

1) S^ quarters as before at a price of production of 6 
pounds sterling; this with two investments of capital of 2^ 
pounds sterling each, which both form surplus profits, but of 
a decreasing amount. 

2) 1 quarter at 3 pounds sterling; an investment of cap- 
ital, in which the individual price of production shall be 
equal to the regulating price of production. 

3) 1 quarter at 4 pounds sterling; an investment of capi- 



848 Capitalist Production. 

tal, in which the individual price of production shall be 
higher bj 25% than the regulating price. 

We should then have 5-| quarters per acre, at 13 pounds 
sterling, with an investment of a capital of 10 pounds 
sterling; this would be four times the original investment of 
capital, but not quite three times the product of the first in- 
vestment of capital. 
- 5f quarters per acre at 13 pounds sterling make an aver- 
age price of production of 2yt pounds sterling, which would 
give a surplus of -^j pound per quarter at the regulating price 
of production of 3 pounds sterling. This surplus may be 
converted into rent. 5^ quarters sold at the regulating price 
of production of 3 pounds sterling make 16| pounds sterling. 
After deducting the cost of production of 13 pounds sterling 
a surplus, or rent of 3^ pounds sterling remains, which, cal- 
culated at the present average price of production per quar- 
ter of B, that is, at 2 ^pounds per quarter, represent l^j 
quarters. The money rent would have fallen by 1 pound 
sterling, the grain rent by about ^ quarter, but in spite of the 
fact that the fourth additional investment upon B does not 
produce a surplus profit, but even less than the average profit, 
a surplus profit and a rent still continue to exist. Let us 
assume that not only the investment of capital as illustrated 
in ISTo. 3), but also that in IS[o. 2), produce at a cost exceed- 
ing the regulating price of production, then the total produc- 
tion is 3| quarters at 6 pounds sterling plus 2 quarters at 8 
pounds sterling, total 5-| quarters at 14 pounds sterling cost 
of production. The average price of production per quarter 
would be 2^ pounds sterling, and it would leave a surplus of 
■^ pound sterling. The 5^ quarters, sold at 3 pounds sterling, 
make 16^ pounds sterling; subtract the 14 pounds sterling 
of cost of production, and 2^ pounds sterling remain for rent. 
At the present average price of production upon B this would 
be equivalent to f-f quarters. In other words, a rent would 
still remain, although less than before. 

This shows at any rate, that upon the better soils with addi- 
tional investments of capital, whose product costs more than 
the regulating price of production, the rent does not disap- 



Analysis of Differential Rent. 



849 



pear, at least not within the bounds of admissible practice, al- 
though it must decrease, and will do so in proportion, on the 
one hand, to the aliquot part formed by this unproductive 
capital in the total investment of capital, on the other hand 
in proportion to the decrease of its fertility. The average 
price of its fertility would still stand below the regulating- 
price and would still leave a surplus profit that could be con- 
verted into rent. 

Let us now assume that the average price per quarter of B 
coincides with the general price of production, in consequence 
of four successive investments of capital (2^, 2-|, 5 and 5 
pounds sterling) with a decreasing productivity. 



Capital 
P.St. 


Profit 
P. St. 


Yield 
Qrs. 


Cost of Production 


Selling 
Price 
P. St. 


Proceeds 
P. St. 


Surplus for Rent 


per Qr. 
P.St. 


Together 
P.St. 


Qrs. 


P St. 


Si 
St 


1 


2 

1 


1^ 
2 
4 
6 


3 
3 
6 
6 


3 
3 
3 
3 


6 
3 


1 
% 
- % 
-1 


3 


15 


3 


6 




18 




18 









The capitalist renter in this case sells every quarter at its 
individual price of production, and consequently the total 
number of quarters at their average price of production per 
quarter, which coincides with the regulating price of 3 pounds 
sterling. Hence he still makes a profit of 20%, or 3 pounds 
sterling, upon his capital of 15 pounds sterling. But the 
rent is gone. What has become of the surplus in this com- 
pensation of individual prices of production per quarter with 
the general price of production? 

The surplus profit on the first 2-| pounds sterling was 3 
pounds sterling; on the second 2| pounds sterling it was Im- 
pound sterling; total surplus profit on one-third of the in- 
vested capital, that is, on 5 pounds sterling, 4-| pounds ster- 
ling, or 90%. 

In the case of investment ITo. 3) the 5 poimds sterling 
do not only yield no surplus profit, but its product of \\ 
quarters, if sold at the general price of production, gives a 
minus of 1^ pounds sterling. Finally, in the case of in- 



3B 



850 Capitalist Production. 

vestment 'No. 4), which amounts likewise to 5 pounds sterling, 
its product of 1 quarter, if sold at the general price of pro- 
duction, gives a minus of 3 pounds sterling. Both invest- 
ments of capital together give a minus of 4^ pounds sterling, 
equal to the surplus profit of 4,^ pounds sterling, which was 
realized on investments ISTos. 1) and 2). 

The surplus profits and deficits balance one another. 
Therefore the rent disappears. In fact this is possible only 
because the elements of surplus-value, which form a surplus 
profit, or rent, now pass into the formation of the average 
profit. The capitalist renter makes this average profit of 3 
pounds sterling on 15 pounds sterling, or of 20%, at the 
expense of the rent. 

The compensation of the individual average price of pro- 
duction of B to the general price of production of A, which 
regulates the market, presupposes that the difference, by which 
the individual price of the product of the first investment of 
caj)ital stands below the regulating price, is more and more 
compensated and finally balanced by the diiference, by which 
the product of the subsequent investments of capital stands 
above the regulating price. What appears as a surplus profit, 
so long as the product of the first investment of capitals sold 
by itself, becomes by degrees a part of their average price of 
production, and thereby enters into the formation of the aver- 
age profit, until it is finally absorbed in this way. 

If only 5 pounds sterling are invested in B, instead of 15 
pounds sterling, and if the additional 2| quarters of the last 
Table are produced by taking 2-| new acres of A under culti- 
vation with an investment of 2^ pounds sterling per acre, 
then the invested additional capital would amount only to Q^ 
pounds sterling, so that the total investment on A and B 
for the production of these 6 quarters would be only 11^ 
pounds sterling instead of 15 pounds sterling, and the total 
cost of production of these including the profit of 13^ pounds 
sterling. The 6 quarters would- still be sold at 18 pounds 
sterling, but the investment of capital would have decreased 
by 3f pounds sterling, and the rent upon B would be 4^ 
pounds sterling per acre, as before. It would be different, if 



Analysis of Differential Rent. 851 

the production of the additional 2^ quarters would require 
that inferior soil than A, for instance A — 1, A — 2, should 
be taken under cultivation; so that the price of production 
per quarter, for 1^ quarters on soil A — 1 would be 4 pounds 
sterling, and for the last quarter on soil A — 2 would be 6 
pounds sterling. In this case these 6 pounds sterling would 
be the regulating price of production per quarter. The 3^ 
quarters of B would then be sold at 21 pounds sterling in- 
stead of 10| pounds sterling, and this would leave a rent of 
15 pounds sterling instead of A^ pounds sterling, or in grain 
a rent of 2^ quarters instead of 1^ quarter. In the same way 
the one quarter on A would now leave a rent of 3 pounds ster- 
ling, or of ^ quarter. 

Before we discuss this point any further, we will pause to 
make the following observation. 

The average price of one quarter of B is compensated and 
coincides with the general price of production of 3 pounds 
sterling per quarter, regulated by A, as soon as that portion 
of the total capital, which produces the excess of 1^ quarter, 
is balanced by that portion of the total capital, which pro- 
duces a deficit of li; quarter. How soon this compensation is 
effected, or how much capital with less than average pro- 
ductivity must be invested in B for that purpose, will de- 
pend, assuming the surplus productivity of the first invest- 
ments of capital to be given, upon the relative underproduc- 
tivity of the later invested capitals, compared with an invest- 
ment of the same amount upon the worst regulating soil A, 
or upon the individual price of production of their product, 
compared with the regulating price. 



We now come to the following conclusions from the fore- 
going: 

1) So long as the additional capitals are invested in the 
same soil with a surplus productivity, even a decreasing one, 
the absolute rent in grain and money increases per acre, al- 
though it decreases relatively, in proportion to the advanced 
capital (in other words, the rate of surplus profit, or rent). 



852 Capitalist Production. 

The limit is here formed by that additional capital, which 
yields only the average profit, or the price of production of 
whose product coincides with the general price of production. 
The price of production remains the same under these circum- 
stances, unless the production upon the lesser soils becomes 
superfluous through an increased supply. Even with a fall- 
ing price may these additional capitals still produce a surplus 
profit, though a smaller one, within certain limits. 

2) The investment of additional capital, which produces 
only the average profit, whose surplus productivity is there- 
fore zero, does not alter anything in the level of the exist- 
ing surplus profit, and consequently of the rent. The indi- 
vidual average price per quarter increases thereby upon the 
superior soils ; the surplus per quarter decreases, but the 
number of quarters, which carry this decreased surplus, in- 
creases, so that the product remains the same. 

3) Additional investments of capital, whose product has 
an individual price of production exceeding the regulating 
price, whose surplus productivity is therefore' not merely 
zero, but less than zero, that is, a minus lower than the pro- 
ductivity of the same investment of capital upon the regulat- 
ing soil A, bring the individual average price of production 
of the total product of the superior soil closer to the general 
price of production, reduce more and more the difference 
between both, which forms the surplus profit, or rent. More 
and more of that which forms a surplus profit, or rent, passes 
over into the formation of the average profit. But neverthe- 
less the total capital invested in one acre of B continues to 
yield a surplus profit, although a decreasing one in proportion 
as the capital with undernormal productivity and the degree 
of its underproductivity increase. The rent, with an in- 
creasing capital and increasing production, decreases in this 
case absolutely per acre, not merely relatively as compared to 
the increasing size of the invested capital, as in the second 
case. 

The rent cannot disappear, unless the individual average 
price of production of the total product of the better soil B 
coincides with the regulating price, so that the entire sur- 



Analysis of Differential Rent. 853 

plus profit of the first more productive investment of capital 
is consumed in the formation of the average profit. 

The minimum limit of the fall for the rent per acre is the 
point at which it disappears. But this point does not assert 
itself, as soon as the additional investments of capital work 
with an underproductivity, but rather as soon as the addi- 
tional investment of the underproductive capitals becomes 
so great that their eifect paralyzes" the overproductivity of the 
first investments of capital, so that the productivity of the 
total capital becomes the same as that of A, and the individual 
average price of the quarter of B the same as that of the 
quarter of A. 

In this case, likewise, the regulating price of production, 
3 pounds sterling per quarter, remains the same, although the 
rent would have disappeared. Only after this point would 
have been passed, would the price of production have to rise 
in consequence of an increase of either the degree of under- 
productivity of the additional capital or of the magnitude of 
the additional capital of the same underproductivity. For 
instance, if in the above Table 2^ quarters were produced in- 
stead of 1^ quarters, at 4 poimds sterling per quarter, upon 
the same soil, then we should have altogether 7 quarters at 
22 pounds sterling cost of production ; the quarter would cost 
87- pounds sterling; it would be ^ above the general price 
of production which would have to rise. 

For a long time, then, additional capital with underpro- 
ductivity, or even increasing underproductivity, might be in- 
vested, until the individual average price per quarter of the 
best soils would become equal to the general price of produc- 
tion, until the excess of the latter over the former, and with 
it the surplus profit and the rent, would entirely disappear. 

And even in this case the disappearance of the rent from 
the better kinds of soil would only signify that the individual 
average price of their products would coincide with the general 
price of production, so that this last price would not have to 
rise. 

In the above illustration, upon soil B, which is there the 
lowest of the better rent paying soils, 3^ quarters were pro- 



854 



Capitalist Production. 



duced by a capital of 5 pounds sterling with a surplus pro- 
ductivity, and 2-| quarters by a capital of 10 pounds sterling 
with underproductivity, together 6 quarters, of which y^ ^^^ 
produced by the capitals with underproductivity. And only 
at this point does the individual average price of production 
of the 6 quarters rise to 3 pounds sterling and coincide with 
the general price of production. 

Under the law of landed property, however, the last 2^ 
quarters could not have been produced in this way at 3 
pounds sterling per quarter, Avith the exception of the case, in 
which they may be produced upon 2^ new acres of the soil A. 
The case, in which the additional capital produces only at 
the general price of production, would have been the limit. 
Beyond it the additional investment of capital would have 
to cease upon the same soil. 

If the capitalist renter once pays 4^ pounds sterling of 
rent for the first two investments of capital, he must continue 
to pay them, and every investment of capital, which produces 
one quarter below 3 pounds sterling, would cause him a de- 
duction from his profit. The compensation of the individual 
price of production, in the case of underproductivity, is 
thereby prevented. 

Let us take this case in the previous illustration, in which 
the price of production of the soil A, at 3 pounds sterling per 
quarter, regulates the price for B. 



Capital 
P.St. 


Profit 
P. St. 


Cost of 

Production 

P. St. 


Yield 
Qrs. 


Cost of 

Production 

per Qr. 


Selling Price 


Surplus 
Profit 
P.St 




per Qr. 
P. St. 


Together 
P. St. 


P.St. 


5 

5 


A 
1 
1 


3 
3 
6 
6 


2 
1 


3 
6 


3 
3 
3 
3 


6 

^'A 

3 


3 

i'A 


> 


15 


4 


18 








18 


i'A 


i% 



The cost of production of the 3| quarters in the first two 
investments is likewise 3 pounds sterling per quarter for the 
capitalist renter, since he has to pay a rent of 4^ pounds 
sterling, the difference between his individual price of produc- 
tion and the general price of production not flowing into his 



Analysis of Differential Rent. 855 

pocket. In his case, then, the excess of the price of the first 
two investments of capital cannot serve for the compensation 
of the deficit incurred in the production of the third and fourth 
investment of capital. 

The 1-| quarters in investment 'No. 3) cost the capitalist 
renter, v^ith profit included, 6 pounds sterling; but at the 
regulating price of 3 pounds sterling per quarter he can sell 
them only for 4^ pounds sterling. In other vp^ords, he would 
not only lose his whole profit, but also ^ pound sterling, or 
10% of his invested capital of 5 pounds sterling. The loss 
of profit and capital in the case of investment ISTo. 3) would 
amount to 1^ pound sterling, and in the case of investment 
No. 4) 3 pounds sterling, together 4^ pounds sterling, just 
as much as the rent of the better investments amounts to, 
whose individual price of production cannot take part in the 
compensation of the individual average price of production of 
the total product of B, because its surplus is paid as a rent to 
some third person. 

If the demand should require that the additional 1^ quar- 
ters must be produced by a third investment of capital, then 
the regulating market price would have to rise to 4 pounds 
sterling per quarter. In consequence of this rise in the regu- 
lating market price the rent upon B would rise for the first 
and second investment, and a rent would be formed upon A. 

Although the differential rent is but a formal transforma- 
tion of surplus profit into rent, since property in land enables 
the owner in this case to draw the surplus profit of the capi- 
talist renter into his own hands, we find nevertheless that 
the successive investment of capital upon the same land, or, 
what amounts to the same, the increase of the capital invested 
in the same land, reaches its limit far more rapidly when the 
rate of productivity of the capital decreases and the regulat- 
ing price remains the same, so that in fact a more or less arti- 
ficial barrier is erected as a consequence of the mere formal 
transformation of surplus profit into ground rent, — which is ^ 
the result of private property in land. The rise of the 
general price of production, which becomes necessary when 
the limit is narrowed beyond the ordinary, is in this case not 



8^6 Capitalist Production. 

merely the cause of a rise of the differential rent, but the ex- 
istence of differential rent as rent is at the same time a 
reason for the earlier and more rapid rise of the general price 
of production, in order to insure by this means the supply of 
the needed larger product. 

Furthermore we must make a note of the following facts: 
By an addition of capital to soil B the regulating price 
could not, as above, rise to 4 pounds sterling, if soil A should 
supply the additional product below 4 pounds sterling by a 
second investment of capital, or if new and worse soil than 
A should come into competition, whose price of production 
would be higher than 3 but lower than 4 pounds sterling. We 
see, then, that differential rent No. I and differential rent 
'No. II, while the first is the basis of the second, are at the same 
time mutual limits for one another, by which now a successive 
investment of capital upon the same soil, now an investment 
of capital side by side upon new soil, is brought about. In 
like manner they act as mutual boundaries in other cases, for 
instance, when better land is taken up. 



CHAPTER XLIV. 

DIFFEEENTIAL EENT EVEN UPON THE WORST SOIL UNDER 
CULTIVATION. 

Let us assume that the demand for grain is rising, and that 
the supply cannot be made to cover the demand, unless suc- 
cessive investments of capital with deficient productivity are 
made upon the rent-paying soils, or by an additional invest- 
ment of capital, likewise with a decreasing productivity, upon 
soil A, or by the investment of capital in new lands of a lesser 
quality than A. 

Let us take soil B as a representative of the rent paying 
soils. 

The additional investment of capital demands a rising of 
the market price above the prevailing price of production of 



Differential Rent on Worst Soil. 857 

3 pounds sterling per quarter, in order that the increased pro- 
duction of one quarter (which may here stand for one million 
quarters, as may every acre for one million acres) upon B may 
be possible. An increased production may also take place 
upon soils C and D, etc., the soils paying the highest rent, 
but only with a decreasing power to produce a surplus; but 
it is assumed that the one quarter upon B must necessarily 
be produced in order to cover the demand. If this one 
quarter is more easily produced by investing more capital 
in B than with the same addition of capital to A, or by 
descending to soil A — 1, which may, perhaps, produce 
one quarter only for 4 pounds sterling, whereas the addi- 
tional capital upon A might do so at 3f pounds sterling per 
quarter, then the additional capital upon B will regulate the 
market price. 

Let us also assume that A produces one quarter at 3 pounds 
sterling, as it did heretofore. Let B likewise, as before, pro- 
duce altogether 3| quarters at an individual price of produc- 
tion of 6 pounds sterling for its total output. Now, if an 
addition of 4 pounds sterling becomes necessary upon B (in- 
cluding the profit) in order to produce an additional quarter, 
whereas it might be produced upon A at 3| pounds sterling, 
then it would naturally be produced upon A, not upon B. Let 
us assume, then, that this additional quarter can be produced 
upon B with an additional cost of production of 3^ pounds 
sterling. In this case S^ pounds sterling would become the 
regulating price for the entire production. B would now 
sell its product of 4-1 quarters at 15f pounds sterling. The 
cost of production of the first 3^ quarters, or 6 pounds ster- 
ling, would have to be deducted from this, also that of the last 
quarter, or 3-J pounds sterling, total 9^ pounds sterling. This 
leaves a surplus profit for rent of 6^ pounds sterling, as 
against the former 4^ pounds sterling. In this case one acre 
of A would also yield a rent of ^ pound sterling; but not the 
worst soil A, but the better soil B would regulate the price of 
production with 3| pounds sterling. Of course we assume 
here that new soil of the quality of A is not accessible in the 
same favorable location as that hitherto cultivated, but that 



858 



Capitalist Production. 



either a second investment of capital upon the already culti- 
vated soil A is required at a higher cost of production, 
or the cultivation of still inferior soil, such as A — 1. 
As soon as differential rent 'No. II comes into action by 
successive investments of capital, the limits of the rising 
price of production may be regulated by better soil, and the 
worst soil, the basis of differential rent ISTo. I, may also carry 
a rent. Under these circumstances all cultivated lands would 
pay a rent under a mere differential rent system. We should 
then have the following two Tables, in which we mean by the 
term cost of production the sum of the invested capital plus 
20% profit, in other words, on every 2| pounds sterling 
of capital ^ pound sterling of profit, total 3 pounds sterling. 



Class 
of 
Soil 


Acres 


Cost of 

Production 

P. St. 


Product 
Qrs. 


Selling 
Price 
P.St. 


Proceeds 

in Money 

P.St 


Grain 
Rent 
Qrs. 


Money 
Rent 
P.St. 


A 
B 
C 
D 


1 

1 
1 

1 


3 
6 
6 
6 


1 

3 1, 2 
5 1/2 
7 1/2 


3 
3. 
3 
3 


3 

10 1/2 
16 1/2 
22 1/2 


1 1/2 
3 1/2 
5 1/2 


4 1/2 
10 1,2 
16 1/2 


Total 


4 


21 


17 1/2 


- 


52 1/3 


10 1/2 


31 1/2 



This is the condition of affairs, before the new capital of 
3| pounds sterling is invested in B, which supplies only one 
quarter. After this investment has been made, we have the 
following condition: , 



Class 
of 
Soil 


Acres 


Cost of 

Production 

P.St. 


Product 
Qrs. 


Selling 
Price 
P.St. 


Proceeds 

in Money 

P.St. 


Grain 
Rent 
Qrs. 


Money 
Rent 
P.St. 


A 
B 
C 
D 


1 

1 
1 
1 


3 

6 
6 


I 
5% 


^2 

3^ 
3^ 


3^ 

19^ 
26 K 


1,-7 
1 11/14 
3 11A4 
5 11/14 


20 Ji 


Totals 


4 


24K 


18^ 




64K 


n% 


40Ji 



[This, again, is not quite correctly calculated. The capi- 
talist renter of B has to meet a cost of production of 9^ 
pounds sterling for the 4-^ quarters and besides 4| pounds 
sterling in rent, a total of l-i pounds sterling; average per 
quarter 3^ pounds sterling. This average price of his total 



Differential Rent on Worst Soil. 859 

production thus becomes the regulating market price. Accord- 
ing to this the rent upon A would amount to ^ pound sterling 
instead of ^ pound sterling and that upon B would remain 
4-| pounds sterling, as heretofore. 4-| quarters at 3|^ pounds 
sterling make 14 pounds sterling, and if we deduct 9^ pounds 
sterling of cost of production we have 4-| pounds sterling left 
for surj)lus profit. We see, then, that in spite of the required 
change in figures this illustration shows the way in which the 
better rent paying soil, by means of differential rent No. II, 
may regulate the price and thus transform all soil, even a 
hitherto rentless one, into rent paying soil. — F. E.] 

The grain rent must rise, as soon as the regulating price of 
production of the grain rises, that is, as soon as the quarter 
of grain rises upon the regulating soil, or the regulating in- 
vestment of capital upon one of the various kinds of soil. It 
is the same as though all kinds of soil had become less pro- 
ductive, and as though they were producing only 5-7 quarter 
instead of one quarter with a new investment of 2^ pounds 
sterling. Whatever they produce more in grain with the 
same investment of capital, is converted into a surplus product, 
in which the surplus profit and with it the rent are incorpo- 
rated. Assuming that the rate of profit remains the same, 
the capitalist renter will have to buy less grain with his profit. 
The rate of profit may remain the same, if the wages' do not 
rise, either because they are depressed to the physical mini- 
mum, below the normal value of labor-power, or because the 
other things needed for consumption by the laborer and sup- 
plied by the manufacturer have become relatively cheaper; 
or because the working day has been prolonged or has be- 
come more intensive, so that the rate of profit in other than 
agricultural lines of production, which, however, regulates 
the agricultural profit, has remained the same or has risen; 
or, finally, because there may be more constant and less 
variable capital employed in agriculture, even though the 
total capital invested be the same. 

ISTow we have considered the first condition in which rent 
may arise upon the worst soil A without taking still worse 
soil under cultivation; that is, in which rent may arise out 



86o Capitalist Production. 

of the difference between the old individual price of this land, 
which was hitherto the regulating price of production, 
and the new, higher, price of production, at which the last 
additional capital with less than normal productive power 
upon the better soil supplies the necessary additional product. 

If the additional product had to be supplied by soil A — 1, 
which cannot produce one quarter at less than 4 pounds ster- 
ling, then the rent would have risen to one pound sterling 
upon A. But in this case the soil A — 1 would have taken 
the place of A as the worst cultivated soil, and A would have 
risen in the scale to the place of the lowest link in the series 
of rent paying soils. Differential rent ISTo. I would have 
changed. This case, then, is outside of the consideration of 
differential rent II, which arises out of the different produc- 
tivity of successive investments of capital upon the same piece 
of land. 

But aside from this, differential rent may arise upon soil 
A in two other ways. 

In the first place, it may arise so long as the price remains 
unchanged (any price, even a lower one compared to former 
ones), if the additional investment of capital creates a surplus 
product, which it must always do, on first sight, and up to a 
certain point, upon the worst soil. 

In the second place, it may arise, if the productivity of the 
successive investments of capital upon soil A decreases. 

The assumption in either case is that the increased produc- 
tion is required on account of the condition of the demand. 

But from the point of view of differential rent, a peculiar 
difficulty arises here on account of the previously developed 
law, according to which it is always the individual average 
price of production per quarter in the total production (or 
the total investment of capital) which acts as the determining 
factor. In the case of soil A, however, it is not, as it is in 
the case of the better soils, a question of a price of production 
existing outside of it, which limits the equalization of the 
individual price of production and the general price of pro- 
duction, for new investments of capital. For the individual 



Differential Rent on Worst Soil. 86 1 

price of production of A is precisely the general price of pro- 
duction regulating the market price. 

Let us assume : 

1) When productive power of successive investments of 
capital is increasing, that one acre of A will produce 3 
quarters instead of 2 quarters with an investment of 5 pounds 
sterling of capital, corresponding to 6 pounds sterling of cost 
of production. The first investment of 2^ pounds sterling 
supplies one quarter, the second 2 quarters. In this case 6 
pounds sterling of cost of production will correspond to a 
product of 3 quarters, so that the average price of one quarter 
will be 2 pounds sterling. If the 3 quarters are sold at 2 
pounds sterling per quarter, then A does not produce any rent 
any more than it did before. Only the basis of differential 
rent ISTo. II has been altered. The regulating price of pro- 
duction is now 2 pounds sterling instead of 3 pounds. A 
capital of 2^ pounds sterling produces now an average of 1^ 
quarters upon the worst soil instead of 1 quarter, and this is 
now the official productivity for all better soils with an in- 
vestment of 2^ pounds sterling. A portion of the ordinary 
surplus product now passes over into the formation of their 
necessary product, just as a portion of their surplus profit 
now passes over into the formation of the average profit. 

But if the calculation is made as it is upon the better soils, 
where the average calculation does not alter anything in the 
absolute surplus, because the general price of production is 
the limit of the investment of capital, then one quarter of the 
first investment of capital costs 3 pounds sterling and the 2 
quarters of the second investment costs only 1-| pounds ster- 
ling. This would give rise to a grain rent of one quarter and 
a money rent of 3 pounds sterling upon A, but the 3 quarters 
would be sold at the old price of 9 pounds sterling all 
together. If a third investment of 2^ pounds sterling of 
capital were made at the same productivity as the second in- 
vestment, then the total production would be 5 quarters at 
9 pounds sterling of cost of production. If the individual 
average price of A should remain the regulating price, then 
one quarter would be sold at If pound sterling. The average 



862 Capitalist Production. 

price would have fallen once more, not tlirough a new rise of 
the productivity of the third investment of capital, but merely 
through the addition of a new investment of capital with the 
same additional productivity as the second one. Instead of 
raising the rent upon the rent paying soils, the successive in- 
vestments of capital of a higher, but sustained, fertility upon 
the soil A would lower the price of production and with it 
the differential rent upon all other soils in the same propor- 
tion, under conditions remaining the same. On the other 
hand, if the first investment of capital, which produces one 
quarter at 3 pounds sterling, should remain in force by itself, 
then 5 quarters would be sold at 15 pounds sterling, and the 
differential rent of the later investments of capital upon soil 
A would amount to 6 pounds sterling. The additional capi- 
tal per acre of soil A, whatever might be the manner of its 
application, would be an improvement in this case, and it 
would make the original portion of capital more productive. 
It would be nonsense to say that ^ of the capital had produced 
one quarter and the other f four quarters. For 9 pounds 
sterling per acre would always produce 5 quarters, while 3 
pounds sterling would produce only one quarter. Whether 
a rent would arise here or not, whether a surplus profit would 
be made or not, would depend wholly upon circumstances. 
IN'ormally the regulating price of production would fall. This 
would be the case, if this improved, but more expensive cul- 
tivation of soil A should take place only for the reason that 
it takes place upon all better soils, in other words, if a general 
revolution in agriculture should occur. And the assumption 
in that case would be that this soil is worked with 6 or 9 
pounds sterling instead of 3 pounds. This would apply 
particularly, if the greater part of the cultivated acres of soil 
A, by Avhich the bulk of the supply of this country is 
furnished, should be handled by this new method. But if 
the improvement should extend only to a small portion of the 
area of A, then this better cultivated portion would yield a 
surplus profit, which the landlord would be quick to transform 
wholly or in part into rent and fix permanently in the form 
of rent. In this way a rent might be gradually formed upon 



Differential Rent on JVorst Soil. 863 

all soil of the A quality, in proportion as more and more of 
the area of this soil is taken under cultivation by the new 
method, and the surplus productivity might be confiscated 
wholly or in part, according to market conditions. The 
equalization of the price of production, of soil A to the 
average price of its product at an increased investment might 
thus be prevented by the fixation of the surplus profit of this 
increased investment of capital in the form of rent. If so, 
this would be once again an illustration of the way in which 
the transformation of surplus profit into ground-rent, in other 
words, the intervention of property in land, raises the price 
of production, as we have already noticed in the case of the 
better soils upon which the productivity of the additional 
capitals decreased, so that here the differential rent would 
not be a mere result of the difference between the individual 
and the general price of production. It would prevent, in the 
case of soil A, the identification of both prices in one, because 
it would interfere with the regulation of the price of production 
by the individual price of production of A. It would 
maintain a higher price of production than the necessary one 
and thus create a rent. Even if grain were freely imported 
from abroad, the same result could be brought about or 
perpetuated by compelling the tenants to use soil capable of 
competing in the raising of grain at the price of production 
regulated from abroad for other purposes, for instance for 
pastures, so that only rent paying soils could raise grain, that 
is, only soils whose individual average price of production 
per quarter would be below the price of production de- 
termined from abroad. On the whole it may be assumed 
that the price of production will fall, but not to the level of 
its average. Rather will it be higher than the average, but 
below the price of production of the worst cultivated soil A, so 
that the competition of new lands of the class A is held back. 
2) When the productive power of the additional capitals 
is decreasing, let us assume that soil A - — 1 can produce the 
additional quarter only at 4 pounds sterling, whereas soil A 
produces it at 3f pounds sterling, that is, more cheaply than 
the lesser soil, but still more dearly than the quarter produced 



864 Capitalist Production. 

by the first investment of capital upon it. In this case the 
total price of the two quarters produced upon A would be 6| 
pounds sterling, and the average price per quarter 3f pounds 
sterling. The price of production would rise, but only by f 

pound sterling, whereas it would rise by another f , or to 3| 
pounds sterling, if the additional capital were invested upon 
new soil, which could produce at 3f pounds sterling and thus 
bring about a proportional raise of all other differential rents. 

The price, of production of 3f pounds sterling per quarter 
of A would thus be brought to the figure of its average price 
of production with an increased investment of capital, and 
would be the regulating price; it would not yield any rent, 
because it would not produce any surplus profit. 

However, if this quarter, produced by the second invest- 
ment of capital, were sold at 3| pounds sterling, then the 
soil A would yield a rent of f pound sterling, and it would 
do so upon all acres of A, even those with no additional in- 
vestment of capital, which would still produce one quarter 
at 3 pounds sterling. So long as any uncultivated fields of A 
remain, the price could rise only temporarily to 3f pounds 
sterling. The competition of new fields of A would hold the 
price of production at 3 pounds sterling, until all lands of 
the A class would be exhausted, whose favorable location 
would enable them to produce a quarter at less than 3f pounds 
sterling. This would be a likely assumption, although the 
landlord will not let any tenant have any land free of rent, 
if one acre of A pays rent. 

It would depend once more upon the greater or smaller 
generalization of the second investment of capital in the 
available soil A, whether the price of production shall be 
brought down to an average or whether the individual price 
of production of the second investment of capital shall be reg- 
ulating at 3f pounds sterling. This last case will take place 
only when the landlord gets time to fix the surplus profit, 
which would be made until the demand would be satisfied at 
the price of 3f pounds sterling, permanently in the form of 
rent. 



Differential Rent on Worst Soil. 865 

Concerning the decreasing productivity of the soil with 
successive investments of capital, see Liebig. We have seen 
that the successive decrease of the surplus productive povs^er 
of the investments of capital always increases the rent per 
acre, so long as the price of production remains the same, and 
this may take place even when the price of production is fall- 
ing. 

But in a general way the following remarks may be made. 

From the point of view of the capitalist mode of production 
there is always a relative increase in the price of products, 
when a product cannot be secured unless an expense is in- 
curred, a payment made, which did not have to be met 
formerly. For by a reproduction of the capital consumed in 
production we mean only the reproduction of values, which 
were represented by certain means of production. iN'atural 
elements passing into production as agencies, no matter what 
role they play in production, do not enter into the problem 
as parts of capital, but as free gifts of nature to capital, that 
is, as a free natural productivity of labor, . which, however, 
appears as a productive power of capital, as do all other 
productive powers under the capitalist system. Therefore, if 
such a natural power, which originally does not cost anything, 
takes part in production, it does not count in the de- 
termination of prices, so long as the product supplied by its 
help suffices for the demand. But if a larger product is 
demanded than that which can be supplied by the help of this 
natural power, so that the additional product must be created 
without this power, or by assisting it with human labor power, 
then a new additional element enters into capital. A rela- 
tively larger investment of capital is required for the purpose 
of securing the same product. All other circumstances re- 
maining the same, the price of the product is raised. 



(From a manuscript " Started about the Middle of February, 

1876.") 
Differential Rent and Eent as a mere interest on capital 
invested in the soil. 

3C 



866 Capitalist Production. 

The so-called permanent improvements — ' whicli change 
the physical, and in part also the chemical, condition of 
the soil by means of operations requiring an expenditure 
of capital, and which may be regarded as an incorporation 
of capital in the soil — nearly all amount to giving to a 
certain piece of land in a certain limited locality such qualities 
as are possessed by some other piece of land at some other 
locality, sometimes quite near to the other one, by nature. 
One piece of land is by nature level, another has to be leveled ; 
one possesses natural drainage, another has to be drained 
artificially ; one has naturally a deep top soil, another must be 
artificially deepened; one clay soil is naturally mixed with 
a proper modicum of sand, another has to be treated for the 
purpose of making it so ; one meadow is irrigated or moistened 
naturally, another requires labor to get it into this condition, 
or in the language of bourgeois economists, it requires capital. 

It is indeed a very exhilarating theory, which calls rent 
by the name of interest in the case of one piece of land, whose 
comparative advantages have been acquired, whereas it does 
not do so in the case of a piece of land which has the same ad- 
vantages naturally. (As a matter of fact, this is distorted 
in practice into saying that because rent really coincides in 
the one case with interest, it must falsely be called interest 
in cases where this is positively not the case.) However, 
the land yields a rent after the investment of capital, not be- 
cause capital has been invested, but because the investment 
of capital makes this land more productive than it was for- 
merly. Assuming that all land requires this investment, then 
every piece of land which has not received it must first pass 
through this stage, and the rent which the soil already endowed 
with capital yields (the interest which it may pay in a certain 
case), constitutes as much a differential rent as though it 
])ossesscd this advantage by nature and the other land had 
to acquire it artificially. 

This rent, which may be resolved into pure interest, be- 
comes altogether a differential rent, as soon as the invested 
capital is sunk in the land. Otherwise the same capital would 
have to appear twice as capital. 



Differential Rent and Interest, 867 

It is one of the most amusing incidents, that all opponents 
of Ricardo, who combat the determination of value exclusively 
hy labor, criticize in the case of differential rent arising from 
differences of soil the determination of value by nature in- 
stead of by labor. 'But at the same time they credit the lo- 
cation of the land with this determination, or perhaps, even 
more, the interest on capital sunk in the land during its cul- 
tivation. The same labor produces the same value in the 
product created during a certain time. But the magnitude, 
or the quantity, of this product, and consequently also that 
portion of value, which falls upon some aliquot part of this 
product, depends only upon the quantity of the product, so 
long as the quantity of labor is given, and the quantity of 
the product, in its turn, depends upon the productivity of 
the given quantity of labor, not upon the size of this quantity. 
It is immaterial, whether this productivity is due to nature 
or to society. Only in the case in which the productivity 
costs labor, and consequently capital, does it increase the cost 
of production by a new element, but this is not the case with 
nature alone. 



CHAPTEE XLY. 

ABSOLUTE GE.OUND-EENT. 

In the analysis of ground-rent we proceeded from the as- 
sumption, that the worst soil does not pay any ground-rent, 
or, to put it more generally, that only such land pays ground- 
rent as j)roduces at an individual price of production which is 
below the price of production regulating the market, so that 
in this way a surplus profit arises which is transformed into 
rent. It should be remembered that the law of differential 
rent as such is entirely independent of the correctness or in- 
correctness of this assumption. 

Let us call the general price of production, by which the 
market is regulated, P. Then P coincides for the product of 
the worst soil A with its individual price of production; that 



868 Capitalist Production. 

is to say, its price pays for the constant and variable capital 
consumed in its production plus the average profit (profits of 
enterprise plus interest). 

The rent amounts to zero in this case. The individual 
price of production of the next better soil B is equal to P', 
and P is larger than P' ; that is P pays more than the actual 
price of production of the product of the soil B. ISTow let 
us assume that P minus P' is d ; in this case d, the excess of 
P over P', is a surplus profit, which the tenant realises upon 
class B of soil. This d is converted into rent, which must 
be paid to the landlord. Let the actual price of production 
of the third class of soil, C, be P^', and P minus P'' equal to 
2d; then this 2d is converted into rent; likewise let the in- 
dividual price of production of the fourth class of soil, D, 
be P", and P minus P'" equal to 3d, which is converted into 
ground-rent, etc. ISTow take it that the assumption of a rent 
upon soil A equal to zero and of a price of production equal 
to P plus zero is wrong. Eather let the class A of soil also 
pay a rent, equal to r. In that case we come to two conclu- 
sions. 

First: The price of the product of the land of class A 
would not be regulated by its price of production, but by 
containing a surplus above it would come to P + i'- I'oi' 
assuming the capitalist mode of production to be in a normal 
condition, that is, assuming that the surplus r, which the 
tenant pays to the landlord, is neither a deduction from wages 
nor from the average profit of capital, it can be paid only by 
selling the product above its price of production, so that a 
surplus profit arises, which the tenant might keep if he did 
not have to turn it over to the landlord as a rent. In that 
case the regulating market price of the total product of all 
soils existing on the market would not be the price of pro- 
duction, which capital generally makes in all spheres of pro- 
duction, which is a price equal to the cost of production plus 
the average profit, but it would be the price of production 
plus the rent, P -1- r, and not merely P. For the price of 
the product of soil A expresses generally the limit of the reg- 
ulating general market price, at which the total product can 



Absolute Ground-Rent. 869 

be supplied, and to that extent it regulates the price of this 
total product. 

Secondly: IN'evertheless the law of differential rent 
would not be suspended in this case, although the general 
price of the products of the soil would be essentially modified. 
For if the price of the product of class A should be P + r, 
and this should be the general market price, then the price of 
class B would be likewise P + r? and so would be the price 
of classes C, D, etc. But since P — P' = d, in the case of 
class B, it is evident that (P + r) — (P' + r) is also equal 
to d, and P — P'' in the case of class C would mean that 
(P + r) — (P'' + r) is equal to 2d, and P — P'' in the 
case of class D would mean that the formula (P + r) — 
(P" + r) is equal to 3d, and so forth. In other words, the 
differential rent would still be regulated by the same law as 
before, although the rent would contain an element independ- 
ent of this law and would show a general increase in the same 
way as would the price of the products of the soil. It fol- 
lows, then, that no matter what may be the condition of the 
rent upon the least fertile lands, the law of differential rent 
is not only independent of it, but that also the only manner 
of viewing differential rent in keeping with its character, is 
to place the rent of class A at zero. Whether this is zero or 
larger than zero, is immaterial, so far as the differential 
rent is concerned, and is not considered in the calculation. 

The law of differential rent, then, is independent of the 
results of the following investigations. 

If we now go more deeply into the question, as to what is 
the sound basis of the assumption that the product of the 
worst soil A does not pay any rent, we necessarily get the 
answer: If the market price of the products of the land, 
say of grain, reaches such a level that an additional invest- 
ment of capital in the class A of soils pays the ordinary price 
of production and yields the ordinary average profit to the cap- 
italist, then this is sufficient incentive for investing addi- 
tional capital in soil of class A. In other words, this condi- 
tion satisfies the capitalist that new capital may be invested 
at the average profit and employed in the normal manner, 



870 Capitalist Production. 

It should be noted here that in this case, likewise, the mar- 
ket price must he higher than the price of production of A. 
For as soon as the additional supply has been created, the 
relation between supply and demand has been altered. For- 
merly the supply was insufficient, now it is sufficient. So 
the price must fall. In order to fall, it must have been higher 
than the price of production of A. But the lesser fertility 
of the newly added soils of class A brings it about that the 
price does not fall quite as low as it was at the time 
when the price of production of the class B regulated the mar- 
ket. The price of production of A forms the limit, not for the 
temporary, but for the relatively permanent rise of the market 
price. 

On the other hand, if the newly cultivated soil is more 
fertile than that of the hitherto reg-ulating class A, yet only 
to the extent of satisfying the increased demand, then the 
market price remains unchanged. The inquiry as to whether 
the lowest class of land pays any rent, nevertheless coincides 
also in this case with our present inquiry, for here again the 
assumption that class A does not pay any rent must be ex- 
plained out of the fact that the market price satisfies the cap- 
italist tenant that this price will cover the invested capital plus 
the average profit, in brief, that the market price will cover the 
price of production of his commodities. 

At any rate, the capitalist tenant can cultivate soil of 
class A under these conditions, in so far as he has any de- 
cision in this matter in his capacity as a capitalist. The 
prerequisite for a normal self-expansion of capital is now 
present upon soil A. But the fact that the average condi- 
tions of self-expansion would now enable the capitalist tenant 
to invest capital in soil of the class A if he did not have to 
pay any rent, does not imply that such land is at the disposal 
of the capitalist without any further ceremony. The cir- 
cumstance that the capitalist tenant might invest his cap- 
ital at the average profit, if he did not have to pay any rent, 
is no incentive for the landlord to lend his land to the ten- 
ant gratis and be so philanthropic as to grant free credit to 
this friend in business. To assume that this would bo done 



Absolute Ground-Rent. 871 

would be to do away with private property in land, for its 
existence is precisely an obstacle to the investment of capital 
and to the liberal self-expansion of capital through land. 
This obstacle does not fall by any means before the simple 
reflection of the tenant that the condition of grain prices 
would enable him to get the average profit out of an invest- 
ment of capital in class A of soil, if he did not have to pay 
any rent, in other words, if he could proceed as though pri- 
vate property in land did not exist. But differential rent 
is based upon the fact that private property in land exists, 
that the land monopoly is an obstacle of capital, for without 
it the surplus profit would not be converted into ground- 
rent and would not fall into the hands of the landlord in- 
stead of those of the capitalist tenant. Private property in 
land remains as an obstacle, even where differential rent as 
such is not paid, that is, upon soils of the class A. If we 
observe the cases, in which capital may be invested in the 
land, in a country with capitalist production, without paying 
any rent, we shall find that they imply, all of them, a prac- 
tical abolition of private property in land, even if not a 
legal abolition, a condition which is found only under very 
definite circumstances, which are in their very nature acci- 
dental. 

Eirst: This may take place when the landlord is him- 
self a capitalist, or the capitalist himself a landlord. In 
this case he may himself exploit his land, as soon as the 
market price shall have risen sufficiently to enable him to 
get the price of production, that is, cost of production plus 
the average profit, out of what is now land of class A. But 
why? Because for himself private" property in land is not 
an obstacle to the investment of his capital. He can treat 
his land simply as an element of nature, and can listen 
wholly to considerations of expediency concerning his cap- 
ital, to capitalist considerations. Such cases occur in prac- 
tice, but only as exceptions. Just as the capitalist cultiva- 
tion of the land presupposes the separation of the active 
capital from property in land, so it excludes as a rule the 
self-management of property in land. It is evident, that 



8/2 Capitalist Production. 

the opposite is only an exception. If the increased demand 
after grain requires the cultivation of a larger area of land 
of the class A than is in the hands of self -man aging propri- 
etors, in other words, if a part of such land must be rented 
in order to be cultivated at all, then this hypothetical con- 
ception of the obstacle created by private property in land 
for capital and its investment at once collapses. It is an 
absurd contradiction to start out from the differentiation be- 
tvi^een capital and land, capitalist tenants and landlords, 
which corresponds to the capitalist system, and then to turn 
around and assume that the landlords, as a rule, exploit 
their own land in all cases and to the full extent, where cap- 
ital would not get a rent out of the cultivation of the soil, 
if private property in land were not separate and distinct 
from it. (See the passage from Adam Smith concerning 
mining rent, quoted further along.) Such an abolition of 
private property in land is accidental. It may or may not 
occur. 

Secondly: In the total area of some rented land there 
may be certain portions, which do not pay any rent under 
the existing condition of market prices, so that they are vir- 
tually loaned gratis, although the landlord does not look upon 
it in that light, because he does not consider the special rent 
of some particular patches in the total rental of his rented 
land. In such a case, so far as such patches are exempt from 
rent, private property as an obstacle to the investment of 
capital is obliterated for the capitalist tenant, and his con- 
tract with the landlord implies as much. But he does not 
pay any rent for such patches for the simple reason that he 
pays rent for the land lo which they belong. The assump- 
tion in this case deals with a combination, in which the worse 
land of the class A is not an independent resort by which to 
supply the missing product, but rather an inseparable part 
of some better land. But the case to be investigated is pre- 
cisely that in which certain pieces of land of class A are in- 
dependently cultivated, and must be rented separately under 
the general conditions of capitalist production. 

Thirdly: A capitalist tenant may invest additional cap- 



Absolute Ground-Rent 873 

ital upon the same rented land, although the additional prod- 
uct secured in this way nets him only the price of produc- 
tion at the prevailing market prices, so that he gets only the 
average profit, but does not get any surplus profit with which 
to pay rent. In that case he pays ground-rent with a por- 
tion of the capital invested in the land, but does not pay 
any ground-rent with the remainder of his invested capital. 
How little this assumption solves the problem in question, is 
seen by the following considerations: If the market price 
(and the fertility of the soil) enables him to obtain a larger 
yield with his additional capital, so that this additional cap- 
ital secures for him not merely the price of production, the 
same as his old capital, but also a surplus profit, then he 
pockets this surplus profit himself so long as his present 
lease runs. But why ? Because the obstacle of private 
property has been eliminated for his capital during the time 
of his lease. But the simple fact, that new and inferior soil 
must be independently cleared and independently rented, in 
order to secure this surplus profit for him, proves that the 
investment of additional capital upon the old soil no longer 
sufiices to fill the required increased demand. One assump- 
tion excludes the other. It is true that one might say: The 
rent of the worst soil A is itself a differential rent, compared 
either to the land cultivated by the owner himself (which 
is an accidental exception), or with the additional invest- 
ment of capital upon the old leaseholds which do not pro- 
duce any rent. However, this would be a differential rent^ 
which would not arise from the difference in fertility of the 
various classes of soil, and which would, therefore, not be 
based upon the assumption that class A of soil does not pay 
any rent and sells its product at the price of production. 
And furthermore, the question as to whether additional in- 
vestments of capital upon the same leasehold produce any 
rent or not is quite immaterial for the question, whether the 
new soil of class A, which is about to be taken under culti- 
vation, pays any rent or not, just as it is immaterial for the 
organization of a new and independent manufacturing busi- 
ness whether another manufacturer of the same line of busi- 



874 Capitalist Production. 

ness invests a portion of his capital in interest-bearing papers, 
because he cannot nse all of it in his business; or whether 
he makes certain improvements, which do not secure the 
full profit for him, but at least more than interest. This is 
immaterial for him. The new establishments must produce 
the average profit and are built on this assumption. It is 
true til at the additional investments upon the old leaseholds 
and the additional cultivation of new land of class A mutu- 
ally restrict one another. The limit, up to which additional 
capital may be invested upon the same leasehold under less 
favorable conditions of production, is determined by the new 
competing investments upon soil of class A ; on the other 
hand, the rent which may be produced by this class of soil 
is limited by the competing additional investments of cap- 
ital upon the old leaseholds. 

But all these false subterfuges do not solve the problem, 
which in simple language consists of this: Assuming the 
market price of grain (which shall be typical of all products 
of the soil in this inquiry) to be sufficient for the purpose 
of taking portions of soil of class A under cultivation and 
securing the price of production' (cost of production plus 
average profit) by means of the capital invested in these new 
fields; in other words, assuming the conditions for the nor- 
mal self-expansion of capital upon the soil A to be existent, 
is this sufficient cause for making the investment of such cap- 
ital really possible ? Or must the market price rise to a point 
where even the worst soil A will produce a rent? Does the 
monopoly of the land owner place an obstacle in the way of 
the capitalist who wants to invest, an obstacle which would 
not exist from the capitalist's point of view without that mo- 
nopoly in land ? The conditions, under which this question is 
put, show that the question as to whether capital may really be 
invested in soil of A class A, which would produce the 
average profit, but no rent, is not at all solved by the fact 
that, for instance, additional investments upon the old lease- 
holds may exist, which produce only the average profit but 
no rent at the prevailing market prices. The question still 
remains unanswered. The fact that the additional invest- 



Absolute Ground-Rent. 875 

ments, which do not produce any rent, do not satisfy the de- 
mand is proved by the necessity of taking new land under 
cultivation out of class A. If the additional cultivation of 
land of class A takes place only to the extent that it produces 
a rent, that is, more than the price of production, then only 
two cases are possible. Either the market price must be such 
that even the last additional investments of capital upon the 
old leaseholds produce a surplus profit, which may be pock- 
eted by the tenant or by the landlord. This raise in price 
and this surplus profit of the last additional investment of 
capital would then be a result of the fact that soil A cannot 
be cultivated without producing a rent. For if the price of 
production were sufiicient to bring about a cultivation of 
land A, if the mere average profit were enough for that, then 
the price would not have risen to this point and the compe- 
tition of new lands would have manifested itself as soon as 
they could produce just this price of production. The addi- 
tional investments upon the old leaseholds, which do not pro- 
duce any rent, would then have to compete with the invest- 
ments upon soil A, which likewise do not produce any rent. 
Or, the last investments upon tlje old leaseholds may not pro- 
duce any rent, but still the market price may have risen suf- 
ficiently to make the cultivation of soil A possible and to get 
a rent out of it. In this case, the additional investment of 
capital, which does not produce any rent, would be possible 
only for the reason that soil A could not be cultivated until 
the market price enabled it to produce a rent. Without this 
condition its cultivation would have begun when prices stood 
lower; and those later investments of capital upon the old 
leaseholds, which require a high market price in order to 
produce the ordinary profit without any rent, could not have 
taken place. For they produced only the average profit at 
the high market prices. At a lower market price, which 
would have become the regulating market price of produc- 
tion from the time that soil A would have been taken under 
cultivation, those later investments upon the old leaseholds 
could not have produced this average profit, and this means 
that the investments would not have been made under such 



876 Capitalist Production. 

conditions. In this way, the rent of soil A would indeed 
form a differential rent, compared to the investments upon 
the old leaseholds, which do not produce any rent. But the 
fact that the area of A forms such a differential rent is but 
a consequence of the condition that this area is not taken un- 
der cultivation at all, unless it produces a rent. The first 
condition in this case is that the necessity of this rent, which 
is not based upon any differences of soil, must exist and form 
a barrier to the possible investment of additional capitals 
upon the old leaseholds. In either case, the rent of soil A 
would not be a simple consequence of the rise in grain prices, 
but on the contrary, the fact that the worst soil must produce 
a rent in order to become available for cultivation would be 
the cause of a rise in the price of grain to the point at which 
this condition may be fulfilled. 

The differential rent has this peculiarity, that the landlord 
merely catches the surplus profit which would otherwise go 
into the pocket of the tenant, and which the tenant may ac- 
tually pocket under certain circumstances during the time of 
his lease. The property in land is here merely the cause of 
the transfer of a portion of the price of the product, which 
arises without any active participation of the landlord in pro- 
duction and resolves itself into surplus profit. This trans- 
fer of a portion of the price from one individual to another, 
from the capitalist to the landlord, is due to private prop- 
erty in land. But private ownership of land is not the cause 
which creates this portion of the price, or brings about the 
rise in the price, upon which it is conditioned. On the other 
hand, if the worst soil A cannot be cultivated — although its 
cultivation would yield the price of production — until it 
produces something in excess of the price of production, then 
private property in land is the creative cause of this rise in 
price. Private property in land itself has created rent. 
This fact is not altered, if, as in the second case mentioned, 
the rent now produced by soil A is a differential rent com- 
pared with the last additional investment of capital upon 
the old leaseholds, which pays only the price of production. 
For the circumstance, that soil A cannot be cultivated, until 



Absolute Ground-Rent Syy 

the regulating price of production has risen high enough to 
admit of a rent for soil A, is in this case the sole reason of 
the rise of the market price to that level, which enables the 
last investments upon the old leaseholds to secure the price 
of production, by means of which a rent is obtained from soil 
A. The fact that this soil has to pay any rent at all is in 
this case the cause which creates a differential rent between 
soil A and the last investment upon the old leaseholds. 

Speaking in general of the fact that class A of soil, under 
the assumption that the price of grain is regulated by the 
price of production, does not pay any rent, we mean rent in 
the categorical sense of the word. If the tenant pays a rent, 
which is either a deduction from the normal wages of his 
laborers, or from his own normal average profit, then he does 
not pay a rent which is clearly distinguished from wages and 
profit in the price of his product. We have already indicated 
that this takes place continually in practice. To the extent 
that the wages of the agricultural laborers in a certain coun- 
try are continually depressed below the normal level of 
wages, so that a part of the wages, being deducted from them, 
passes generally over into the rent, this is no exception for the 
tenant upon the worst kind of soil. In the same price of pro- 
duction, which makes the cultivation of the worst soil possible, 
these low wages already form a constituent element, and the 
sale of his product at the price of production does not enable 
the tenant upon this soil to pay any rent. The landlord might 
rent his land also to some laborer, who may be satisfied to pay 
all or a part of that in the form of rent which he may get in the 
selling price above the wages. In all these cases, however, 
no real rent is paid, but merely lease money. But wherever 
conditions correspond to the capitalist mode of production, 
rent and lease money must coincide. It is precisely this nor- 
mal condition which must be analyzed here. 

A reference to colonial conditions proves even less for our 
problem than do the above-mentioned cases, in which actual 
investments of capital under conditions of capitalist produc- 
tion may take place upon the land without producing any 
rent. What makes a colony of a colony — we have in mind 



878 Capitalist Production. 

only true agricultural colonies — is not merely the vast area 
of fertile lands in a natural state. It is rather the circum- 
stance that these lauds are not appropriated, are not brought) 
under private ownership. It is this which makes the enor- 
mous difference between the old countries and the colonies, 
so far as the land is concerned, it is this nonexistence, legal 
or actual, of private property in land, as Wakefield remarks 
correctly ;^^^ and long before him the elder Maribeau, the 
physiocrat, and other older economists had discovered. It 
is quite immaterial here, whether the colonists take posses- 
sion of the land without further ceremony, or whether they 
pay to the state a fee for a valid title to the land under the 
title of a nominal price of land. It is also immaterial, that 
already settled colonists may be legally the owners of land. 
In fact the land ownership ia not an obstacle to the invest- 
ment of capital here, nor to the employment of labor upon 
land without any capital. The settling of a part of the land 
by the established colonists does not prevent the newcomers 
from employing their capital or their labor upon new land. 
Therefore, if we are asked to investigate the influence of pri- 
vate ownership of land upon the prices of the products of 
land and upon the rent in places where such ownership is an 
obstacle to the investment of capital, it is very absurd to 
speak of free bourgeois colonies, in which neither the cap- 
italist mode of production in agriculture, nor the form of 
private property belonging to it, exist, and in which the lat- 
ter does not exist at all in fact. Ricardo is an illustration 
of this in his chapter on ground-rent. In the beginning he 
says that he is going to investigate the effect of the appro- 
priation of land upon the value of the products of the soil, 
and immediately after that he takes for an illustration the 
colonies, assuming that real estate exists in a relatively ele- 
mentary form and that its exploitation is not limited by the 
monopoly of private ownership in land. 



The mere legal property in land does not create any ground- 

128 Wakefield, England and America, London, 1833. Compare also Capitcl, 
Volume I, Chapter XXVII. 



Absolute Ground-Rent. 879 

rent for the landlord. Bnt it gives him the power to with- 
draw his land from exploitation until the economic conditions 
permit him to utilize it in such a way that it will yield 
him a surplus, whenever the land is used either for agricul- 
ture proper or for other productive purposes, such as build- 
ings, etc. He cannot increase or decrease the absolute quan- 
tity of its field of employment, but he can do so with its mar- 
ketable quantity. For this reason, as Fourier has already 
remarked, a characteristic fact in all civilized coimtries is 
that a comparatively considerable portion of the land always 
remains uncultivated. 

Assuming, then, that the demand requires the opening up 
of new lands, and that these lands are less fertile than those 
hitherto cultivated, will the landlord rent such lands for 
nothing, just because the market price of the products of the 
soil has risen high enough to pay to the tenant the price of 
production on his investment in this land and enable him to 
reap the average profit ? By no means. The investment of 
capital must net him a rent. He does not rent his land un- 
til he can get lease money for it. Therefore the market 
price must have risen above price of production to the point 
P + r, so that a rent can be paid to the landlord. Since the 
real estate does not net any income, according to our assump- 
tion, until it is rented, so that it is economically valueless 
until then, a small rise of the market price above the price 
of production will suffice to bring the new land of the worst 
class upon the market. 

The question is now : Does it follow from the ground-rent 
of the worst soil, which cannot be derived from any differ- 
ence of fertility, that the price of the products of the soil is 
necessarily a monopoly price in the ordinary meaning of the 
term, or a price, into which the rent enters like a tax, only 
with the distinction that the landlord levies the tax instead of 
the state ? It is a matter of course that this tax has certain 
definite economic limits. It is limited by the additional in- 
vestments of capital upon the old leaseholds, by the competi- 
tion of the products of the soil of foreign countries, which 
are imported free of duty, by the competition of the land- 



88o Capitalist Production. 

lords among themselves, and finally by the wants and the 
solvency of the consumers. But this is not the point. The 
point is whether the rent paid by the worst soil passes into 
the price of its products, which price regulates the general 
market price according to our assumption, and whether it 
enters into this price in the same way as a tax enters into 
the price of commodities which are dutiable, in other words, 
whether this rent enters into the price as an element inde- 
pendent of its value. 

This does not necessarily follow by any means, and the con- 
tention that it does has been made only because the distinc- 
tion between the value of commodities and their price of pro- 
duction had not been understood up to the present. We 
have seen that the price of production of a commodity is by 
no means identical with its value, although the prices of pro- 
duction of all commodities, considered as a whole, are regu- 
lated only by their total value, and although the movement of 
the prices of production of the various kinds of commodities, 
taking all other circumstances as equal, is controlled exclu- 
sively by the movement of their values. It has been demon- 
strated that the price of production of a commodity may 
stand above or below its value, and coincides but rarely with 
its value. Hence the fact that the products of the soil are 
sold above their prices of production does not prove by any 
means that they are sold above their values. ISTeither does 
the fact that the products of industry are, on an average sold 
at their prices of production, prove that they are sold at their 
values. It is possible that the products of agriculture are 
sold above their price of production and below their value, 
while many products of industry bring the price of produc- 
tion only because they are sold above their value. 

The relation of the price of production of a certain com- 
modity to its value is exclusively determined by the propor- 
tion, in which the variable part of the capital with which it 
is produced stands to its constant part, or by the organic 
composition of the capital producing it. If the composition 
of the capital in a certain sphere of production is lower than 
that of the social average capital, in other words, if its vari- 



■Absolute Ground-Rent. 88i 

able portion, which is used for wages, is relatively larger than 
its constant portion, which is invested in material require- 
ments of production, compared to the social average capital, 
then the value of its products must stand above their price 
of production. In other words, such a capital, employing 
more living labor, produces at the same rate of exploitation 
of labor more surplus-value, and therefore more profit, than 
an equally large aliquot portion of the social average capital. 
The value of its products stands, therefore, above their price of 
production, since this price of production is equal to the cost 
of production plus the average profit, and the average profit is 
lower than the profit produced in these commodities. The 
surplus-value produced by the social average capital is smaller 
than that produced by a capital of this lower composition. 
On the other hand, when the capital invested in a certain 
sphere of production is of higher than average composition, 
then the case is reversed. The value of the commodities pro- 
duced by it stands below their price of production, and this 
is generally the case with the products of the most highly 
developed industries. 

If the capital in a certain sphere of production is of a 
lower composition than the social average capital, then this 
is primarily an expression of the fact that the productive 
power of the social labor in this particular sphere of produc- 
tion is below the average ; for the prevailing degree of pro- 
ductive power shows itself in the relative preponderance of 
the constant over the variable capital, or in the continual 
decrease of the portion used in a certain capital for wages. 
On the other hand, if the capital in a certain sphere of pro- 
duction is of a higher composition, then it expresses a devel- 
opment of the productive power above the average. 

Leaving aside the work of artists, which is naturally ex- 
cluded from our discussion, it is a matter of course that dif- 
ferent spheres of production require different proportions of 
constant and variable capital according to their technical pe- 
culiarities, and that living labor must occupy more room in 
some, less room in others. For instance, in the extractive 
industries, which must be clearly distinguished from agri- 



882 Capitalist Production. 

culture, raw material as an element of constant capital is 
wholly absent, and even the auxiliary material plays only 
rarely an important role in them. Nevertheless the progress 
of develoj)ment may be measured also in them by the relative 
increase of the constant over the variable capital. 

If the composition of the capital in agriculture proper is 
lower than that of the social average capital, then this would 
be on its face an expression of the fact that in countries with 
a developed production agriculture has not progressed as far 
as the industries which work up its products. This fact 
could be explained, aside from all other economic circum- 
stances which are of paramount importance, from the earlier 
and more rapid development of mechanical sciences, and 
especially by their application, compared to the later and 
partly quite recent develojDment of chemistry, geology and 
physiology, and particularly their application to agriculture. 
For the rest it is an indubitable and long known fact^^^ that 
also the progress of agriculture expresses itself steadily in a 
relative increase of the constant over the variable capital. 
Whether in a certain country with capitalist production, for 
instance in England, the composition of the agricultural cap- 
ital is lower than that of the social average capital, is a ques- 
tion which can be decided only by statistics, and which need 
not be discussed in detail for the purposes of this inquiry. 
So much is theoretically accepted that the value of the agri- 
cultural products cannot be higher than their price of pro- 
duction unless this condition obtains. In other words, a 
capital of a certain size in agriculture produces more surplus- 
value, or what amounts to the same, sets in motion and com- 
mands more surplus-labor (and with it employs more living 
labor) than a capital of the same size in industry of social 
average composition. 

This assumption, then, suffices for that form of rent which 
we are analyzing here, and which can take place only so long 
as this assumption holds good. Wherever this assumption 
falls, the form of rent corresponding to it falls likewise. 

However, the mere fact of an excess of the value of agri- 

*^* See Dombasle and R. Jones. 



Absolute Ground-Rent. 883 

cultural products over their price of production would not 
suffice in itself for the explanation of the existence of a 
ground-rent, which is independent of differences of fertility 
or of successive investments of capital upon the same land, a 
rent which is to be clearly differentiated from differential 
rent, and which we may therefore call absolute rent. Quite 
a number of manufactured products have the peculiarity 
that their value is higher than their price of production, and 
yet they do not produce any excess above the average profit, 
a surplus profit, which might be converted into rent. On 
the other hand, the existence and meaning of the price of 
production and of the average rate of profit which it implies 
rest upon the fact that the individual commodities are not 
sold at their value. The prices of production arise from an 
equalization of the values of commodities. This equaliza- 
tion after restoring their respective capital values to the vari- 
ous spheres of production, in which they were consumed, 
distributes the entire surplus-value, not in proportion as 
it has been produced in the individual spheres of pro- 
duction and incorporated in their commodities, but in 
proportion to the magnitude of the capital invested in 
them. Only in this way is an average profit brought 
about and with it the price of production, whose character- 
istic element this average profit is. It is the continual 
tendency of the capitals to bring about this equalization in 
the distribution of the surplus-value produced by the total 
capital by means of competition, and to overcome all obstacles 
to this equalization. This implies the tendency to permit 
only such surplus profits as arise under all circumstances, 
not from differences between the values and the prices of 
production of the commodities, but rather from the general 
prices of production, which regulates the market and from 
the individual prices of production, which differ from it. In 
other words, only such surplus profits are tolerated, which 
occur within a certain sphere of production and not such as 
occur between two different spheres of production, so that 
they do not touch the general' prices of production of the dif- 
ferent spheres, or their general rate of profit, but which 



884 Capitalist Production. 

rather have for their basis the conversion of values into prices 
of production and into an average rate of profit for the whole. 
This condition rests, however, as previously explained, upon 
the continually changing proportional distribution of the 
total social capital among the various spheres of production, 
upon the unremitting emigration and immigration of cap- 
itals, upon their transfer from one sphere to another, in short 
upon their free movement between the various spheres of 
production, which represent so many available fields of in- 
vestment for the independent constituents of the total cap- 
ital of society. And the other assumption in this case is that 
no barrier, or at least only a temporary and accidental bar- 
rier, interferes with the competition of the capitals, for in- 
stance in some sphere of production, in which the value of 
the commodities is higher than their prices of production, or 
where the produced surplus-value is larger than the average 
profit, so that nothing prevents the reduction of value to a 
price of production and the proportional distribution of the 
excess of surplus-value of this sphere of production among 
all spheres exploited by capital. Eut if the reverse hap- 
pens, if capital meets some foreign power, which it cannot 
overcome, or which it can but partially overcome, and which 
limits its investment in certain spheres, admitting it only un- 
der conditions which wholly or partly exclude that general 
equalization of surplus-value to an average profit, then it is 
evident that the excess of the value of commodities in such 
spheres of production over their prices of production would 
give rise to a surplus profit, which could be converted into 
rent and made independent as such compared to profit. Such 
a foreign power is private ownership of land, when it builds 
obstacles against capital in its endeavor to invest in land, 
such a power is the landlord in his relation to the capitalist. 
Private property in land is then the barrier which does not 
permit any new investment of capital upon hitherto unculti- 
vated or unrented land without levying a tax, in other words, 
without demanding a rent, although the land to be taken under 
new cultivation may belong to a class which does not produce 
any differential rent, and which, were it not for the inter- 



Absolute Ground-Rent. 885 

vention of private property in land, might have been culti- 
vated at a small increase in the market price, so that the 
regulating market price would have netted to the cultivator 
of this vt^orst soil nothing but his price of production. But 
on account of the barrier raised by private property in land, 
the market price must rise to a point, where the land can 
pay a surplus over the price of production, in other words, 
where it can pay a rent. 'Now, since the value of the com- 
modities produced by agTieultural capital is higher than their 
price of production, as we have assumed, this rent (with the 
exception of one case which we shall discuss immediately) 
forms the excess of the value over the price of production, 
or a part of it. Whether the rent consumes the entire dif- 
ference between the value and the price of production, or 
only a greater or smaller part of it, will depend wholly upon 
the relation between supply and demand and upon the area 
of the new land taken in cultivation. So long as the rent 
is not equal to the excess of the value of agricultural prod- 
ucts over their price of production, a portion of this excess 
would always enter into the general equalization and pro- 
portional distribution of all surplus-value among the various 
individual capitals. As soon as the rent is equal to the ex- 
cess of the value over the price of production, this entire por- 
tion of the surplus-value over and above the average profit 
would be withdrawn from the equalization. But whether 
this absolute rent is equal to the whole surplus of value over 
the price of production, or only equal to a part of it, the agri- 
cultural products would always be sold at a monopoly price, 
not because their price would exceed their value, but because 
their price would be equal to their value, or because 
their price would be lower than their value but higher 
than their price of production. Their monopoly would 
consist in the fact that they are not, like other prod- 
ucts of industry whose value is higher than the general price 
of production, leveled to the plane of the price of production. 
Since one portion of the value and of the price of produc- 
tion is an actually existing constant element, namely the cost 
pric6, representing the capital k consumed in production, their 



886 Capitalist Production. 

difference consists in the other, the variable, portion, the sur- 
plus-value, which amounts to p in the price of production, 
that is, to the profit which is equal to the total surplus-value 
calculated on the social capital and on every individual cap- 
ital as an aliquot part of the social capital. This profit 
equals in the value of commodities the actual surplus-value 
created by this particular capital, and forms an integral part 
of the value of commodities created by this capital. If the 
value of commodities is higher than their price of produc- 
tion, then the price of production is k -|- p, the value k -|- P 
-j- d, so that p -j- d represents the surplus-value contained in 
it. The difference betAveen the value and the price of pro- 
duction is, therefore, equal to d, the excess of the surplus- 
value created by this capital over the surplus-value assigned 
to it by the average rate of profit. It follows from this that 
th« price of agricultural products may stand higher than 
their price of production, without reaching up to their value. 
It follows, furthermore, that up to a certain point a perma- 
nent increase in the price of agricultural products may take 
place, before their price reaches their value. It follows also 
that the excess in the value of agricultural products over 
their price of production can become a determining element 
of their general market price only because there is a monop- 
oly in private ownership of land. It follows, finally, that 
in this case the increase in the price of the product is not the 
cause of the rent, but rather the rent is the cause of the in- 
crease in the price of the product. If the price of the prod- 
uct of the unit of the worst soil is equal to P + r, then all 
differential rents will rise by the corresponding multiples of 
r, since the assumption is that P -f- r becomes the regulating 
market price. 

If the average composition of the non-agricultural capital 
were 85 c -|- 15 v, and the rate of surplus-value 100%, then 
the price of production would be 115. If the composition 
of the agricultural capital were 75 c -f- 25 v, and the rate of 
surplus-value the same, then the value of the agricultural 
product and the regulating market price would be 125. 
If the agricultural and the non-agricultural product should be 



AhsoliLte Ground-Rent. 887 

leveled to the same average price (we assume for the sake of 
brevity that the total capital in both lines of production is 
equal), then the total surplus-value would be 40, or 20%, 
upon the 200 of capital. The product of the one as of the 
other would be sold at 120. In the equalization into the prices 
of production the average market prices of the non-agricul- 
tural capital would stand above, and those of the agricultural 
capital below their value. If the agricultural products were 
sold at their full value, they would stand higher by 5, and 
the industrial products lower by 5, than they do in the equal- 
ization. If the market conditions do not permit the sale of 
the agricultural products at their full value, at the full sur- 
plus above the price of production, then the result hangs be- 
tween the two extremes ; the industrial products would be 
sold a little above their value, and the agTicultural products 
a little above their price of production. 

Although the private ownership of land may drive the 
price of the products of the soil above their price of produc- 
tion, it does not depend upon this ownership, but upon the 
general condition of the market, to what extent the market 
price shall exceed the price of production and approach the 
value, and to what extent the surplus-value created in agri- 
culture over and above the given average profit shall either 
be converted into rent or enter into the general equalization 
of the surplus-value to an average profit. At any rate this 
absolute rent, which arises out of the excess of value over 
the price of production, ■ is but a portion of the agricultural 
surplus-value, a conversion of this surplus-value into rent, its 
appropriation by the landlord; so does the differential rent 
arise out of the conversion of surplus-profit into rent, its ap- 
propriation by the landlord, under an average price of pro- 
duction which acts as a regulator. These two forms of rent 
are the only normal ones. Outside of them the rent can rest 
only upon an actual monopoly price, which is determined 
neither by the price of production nor by the value of com- 
modities, but by the needs and the solvency of the buyers. 
Its analysis belongs in the theory of competition, where the 
actual movement of market-prices is considered. 



888 Capitalist Production. 

If all the land suitable for agriculture in a certain coun- 
try were leased — assuming the capitalist mode of produc- 
tion and normal conditions to be general — then there would 
not be any soil that would not pay any rent ; but there might 
be certain parts of some capitals invested in land that might 
not produce any rent. For as soon as the land has been 
rented, private property in land ceases to be an absolute bar- 
rier against the investment of the necessary capital. Still it 
continues to act as a relative barrier even after that, to the 
extent that the appropriation of the capital incorporated in 
the soil by the landlord draws very definite lines for the ac- 
tivity of the tenant. Only in this case would all rent be 
converted into a differential rent, although this would not be 
a differential rent determined by any differences in the fer- 
tility of the soil, but rather by differences between the sur- 
plus profits arising from the last investments of capital in a 
certain soil arfd the rent paid for the lease of the soil of the 
worst quality. Private property in land serves as an abso- 
lute barrier to the investment of capital only to the extent 
that it exacts a tribute for the permission of giving access to 
the land. As soon as this access has been gained, it can no 
longer set any absolute obstacles in the way of the size of any 
investment of capital in a certain soil. The building of 
houses meets a barrier in the private oAvnership of the land 
upon which the houses are to be built by people who do not 
own this land. But after this land has once been leased for 
the purpose of building houses on it, it depends upon the ten- 
ant whether he wants to build a large or a small house. 

If the average composition of the agricultural capital were 
the same, or higher than that of social average capital, then 
absolute rent, in the sense in which we use this term, Avould 
disappear; that is, absolute rent which is different from dif- 
ferential rent as well as from the rent which rests upon an 
actual monopoly price. The value of agricultural capital 
would not stand above its price of production, in that case, 
and the agricultural capital would not set any more labor in 
motion, would not realize any more surplus labor, than the 
non-agricultural capital. The same would take place, if the 



Absolute Ground-Rent. 889 

composition of the agricultural capital would gradually be- 
come the same as that of the average social capital with the 
progress of civilization. 

It looks at first glance like a contradiction, that we should 
assume that on the one hand the composition of the agricul- 
tural capital should become higher, in other words that its 
constant portion should increase faster than its variable one, 
and on the other hand that the price of the agricultural prod- 
uct should rise high enough to admit of the payment of a rent 
on the part of worse soil than that cultivated previously, a 
rent which in this case could come only from an excess of the 
market price over the value and the price of production, in 
short, a rent which could be due only to a monopoly price 
of the product. 

It is necessary to make a clear distinction here. 

In the first place, we saw in the discussion of the way, in 
which the rate of profit is formed, that capitals, which have 
the same composition, so far as their technological side is con- 
cerned, so that they set the same amount of labor in motion 
compared to machinery and raw materials, may nevertheless 
have different compositions owing to the different values of 
the constant portions of capital. The raw materials or the 
machinery may be dearer in one capital than in the other. 
In order to set the same quantity of labor in motion (and this 
would have to be the case, according to our assumption, in 
order that the same mass of raw materials might be worked 
up), a larger capital would have to be advanced in the one 
case than in the other, since I cannot set the same amount of 
labor in motion, if the raw material, which must be paid out 
of 100, costs 40 in one case and 20 in another. But it would 
become evident that these two capitals have the same techno- 
logical composition, as soon as the price of the expensive raw 
material would fall to the level of the cheap. The propor- 
tions of value between constant and variable capital would 
become the same in that case, although no change would have 
taken place in the technical proportions between the living 
labor and the mass and nature of the material requirements 
of production employed by this capital. On the other hand. 



890 Capitalist Production. 

a capital of low organic composition might assume the ap- 
pearance of being in the same class with one of a higher or- 
ganic composition, as soon as the value of its constant parts 
would rise through changes in the composition of its values. 
For instance, one capital might be composed of 60 c + 40 v, 
because it employs much machinery and raw material com- 
pared to living labor, and another capital might be composed 
of 40 c + 60 V, because it employs 60% of living labor, 10% 
of machinery, and 30% of raw material. In this case a sim- 
ple rise in the value of raw and auxiliary materials from 30 
to 80 would wipe out the difference in composition, for then 
the second capital would be composed of 10 machinery, 80 
raw materials, and 60 labor-power, or of 90 c -[- 60 v, which, 
in percentages, would also be equal to 60 c -•- 40 v, although 
no change would have taken place in the technical composi- 
tion. In other words, capitals of the same organic composi- 
tion may have a different value-composition, and capitals with 
the same percentages of value-composition may be at differ- 
ent levels of organic composition and thus express different 
steps in the development of labor's social productivity. The 
mere circumstance, then, that the agricultural capital might 
stand upon the general level, would not prove that the social 
productivity of labor is equally high-developed in it. ISTotli- 
ing would be shown thereby but that its own product, which 
itself forms one of the conditions of its ovni production, had 
become dearer, or that auxiliary materials, such' as manure, 
which used to be close at hand, must now be brought from 
far distant places, etc. 

But aside from this, the peculiar character of agriculture 
must be taken into consideration. 

Even though labor saving machinery, chemical helps, etc., 
may occupy more space in agriculture, so that the constant 
capital increases not merely in value, but also in mass, as 
compared to the mass of the employed labor-power, the ques- 
tion in agriculture (as in mining) is not only one of the so- 
cial, but also of the natural productivity of labor which de- 
pends upon natural conditions. It is possible that the in- 
crease of the social productivity in agriculture barely balances 



Absolute Ground-Rent. 891 

or does not even make up for, the decrease in natural power 
— and compensation through social productivity will always 
be effective for a short time only — so that in spite of the 
technical development there is no cheapening of the product, 
and that at best a greater increase in its price is prevented. 
It is also possible that the absolute mass of products decreases 
with a rising price of cereals, while the relative surplus prod- 
uct increases. This could take place, if the constant capital, 
consisting chiefly of machinery or animals, which require only 
a reproduction of their wear and tear, would increase rela- 
tively, and if the variable capital invested in wages, which 
must always be reproduced in full out of the product, should 
decrease correspondingly. 

On the other hand it is possible, that only a moderate rise 
of the market price above the average is necessary, in order 
to cultivate and draw a rent from soil, which would have re- 
quired a greater rise of the market prices so long as the tech- 
nical helps were less developed. 

The fact that, say in cattle raising on a large scale, the 
mass of the employed labor-power is very small compared 
with the constant capital represented by the cattle, might be 
considered as a refutation of the claim that the percentage 
of labor-power set in motion by agricultural capital is larger 
than that employed by the average social capital outside of 
agriculture. But it should be noted here that we have taken 
for our basis in the analysis of rent that portion of the agri- 
cultural capital, which produces the principal vegetable food, 
which is the chief means of subsistence among civilized na- 
tions. Adam Smith — and this is one of his merits — has 
already demonstrated that quite a different method of deter- 
mining prices is observed in cattle raising, and for that mat- 
ter generally in the production of agricultural capitals not 
engaged in raising the principal means of subsistence, say 
of cereals. For in this case the price of cattle is determined 
by the fact that the price of the product of the soil used for 
cattle raising, say as an artificial pasture, but which might 
just as well be transformed into cereal fields of a certain qual- 
ity, must rise high enough to produce the same rent as cereal 



892 Capitalist Production. 

land of the same quality. In other words, the rent of cereal 
lands becomes a determining element in the price of cattle. 
For this reason Eamsay has justly remarked that the price 
of cattle is artificially raised by the rent, by the economic ex- 
pression of private ownership of land, in short by the private 
ownership of land. * 

Adam Smith says in Book I, Chapter XI, Part I, of his 
Wealth of Nations, that in consequence of the extension 
of cultivation the uncultivated fallow land no longer suffices 
to supply the demand for cattle. A large portion of the cul- 
tivated lands must be used for breeding and fattening cattle, 
the price of which must be high enough to pay not merely for 
the labor spent upon them, but also for the rent which the 
landlord and the profit which the tenant might have drawn 
out of this land, had it been cultivated as a field. The cattle 
raised upon the least tilled peat bogs are sold according to 
their weight and quality in the same market and at the same 
price as those raised upon the best cultivated land. The 
owners of peat bogs profit thereby and raise the rent of their 
lands in proportion to the prices of cattle. 

In this case, likewise. Smith represents the differential 
rent in favor of the worst soil as distinguished from grain 
rent. 

The absolute rent explains some phenomena, which seem 
to make a mere monopoly price responsible for the rent, at 
first sight. Take, for instance, the owner of some forest, 
which exists without any human assistance, say in Norway. 
This will do to make a connection with Adam Smith's exam- 
ple. If this owner of the forest receives a rent from some 
capitalist, who has timber cut, perhaps on account of some 
demand from England, or if this owner has the timber cut 
in his own capacity as a capitalist, then a greater or smaller 
rent will accrue to him in the timber, aside from the profit on 
the invested capital. This looks like a pure increment from 
monopoly in the case of this product of nature. But as a 
matter of fact the capital consists here almost exclusively of 
variable elements invested in labor-power, and therefore it 
sets more surplus labor in motion than another capital of the 



Absolute Ground-Rent. 893 

same size. The value of the timber contains a greater sur- 
plus of unpaid labor, or of surplus-value, than that of a 
product of some capital of higher organic composition. For 
this reason the average profit can be drawn from this timber, 
and a considerable surplus in the form of rent can fall into 
the hands of the owner of the forest. On the other hand 
it may be assumed that, owing to the ease with which the fell- 
ing of timber as a line of production may be extended, the 
demand must rise very considerably, in order that the price 
of timber should equal its value, so that the entire surplus of 
unpaid labor (over and above that portion which falls into the 
capitalist's hands as an average profit) may accrue to the 
landlord in the form of rent. 

We have assumed that the newly cultivated soil is of a 
still lesser quality than the worst previously cultivated one. 
If it is better, it pays a differential rent. But here we are 
analyzing precisely that case, in which the rent does not ap- 
pear as a differential rent. There are only two cases possi- 
ble under these circumstances. Either the newly cultivated 
soil is inferior to the previously cultivated soil, or it is just 
as good. If it is inferior, then we have already analyzed the 
question, iKTothing remains for us to analyze but the case 
in which it is just as good. 

We have already stated in our analysis of differential rent, 
that the progress of cultivation may just as well take equally 
good, or even better soil under new treatment as worse soil. 

First, In differential rent (or any rent, generally speak- 
ing, since even in the case of differential rent the question 
comes up, whether on the one hand the fertility of the soil in 
general, and on the other hand its location, admit of its culti- 
vation at the regulating market price in such a way as to 
produce a profit and a rent) two conditions work in different 
directions, now paralyzing each other, now alternately exert- 
ing the determining influence. The rise of the market 
price — provided that the cost price of cultivation has not 
fallen, in other words, provided that no technical progress 
becomes a new impetus to further cultivation — may bring 
more fertile soil under cultivation, which was formerly ex- 



894 Capitalist Production. 

eluded from eompetition by its location. Or it may, in the 
case of inferior soil, enhance the advantage of location to 
such an extent, that its lesser fertility is balanced thereby. 
Or, without any rise in the market price, the location may 
carry better soils into competition through the improvement 
of means of communication, as we have seen on a large scale 
in the prairie states of Korth America. The same takes place 
also in the older civilized countries, continually if not to 
the same extent as in the colonies, in which, as Wakefield 
correctly states, the location determines the case. To sum 
up, then, the contradictory effects of location and fertility, 
and the variableness of the factor of location, which is con- 
tinually balanced and passes perpetually through progressive 
changes tending towards a balance, carry alternately better 
or worse classes of soil into new competition with the older 
ones under cultivation. 

Second. With the development of natural history and 
agronomics the fertility of the soil is also changed, by 
changing the means through which the elements of the soil 
may be rendered immediately serviceable. In this way light 
kinds of soil in France and in the eastern counties of Eng- 
land, which were considered inferior at one time, have re- 
cently risen to first place. (See Passy.) On the other hand 
soil, which was considered inferior, not for the reason that its 
chemical composition was bad, but that it placed certain me- 
chanical and physical obstacles in the way of cultivation, is 
turned into good land, as soon as the means for overcoming 
such obstacles have been discovered. 

Third. In all old civilized countries old historical and 
traditional conditions, for instance in the form of govermnent 
lands, community lands, etc., have accidentally withdrawn 
large tracts of land from cultivation, and these come back 
into it very gradually. The succession, in which they are 
taken under cultivation, depends neither upon their good 
quality nor upon their location, but upon wholly external cir- 
cumstances. In following up the history of English com- 
munal lands, as they were successively turned into private 
property through the Enclosure Bills and cultivated, nothing 



Absolute Ground-Rent. 895 

would be more ridiculous than the phantastic assumption, 
that a modern agricultural chemist like Liebig had indicated 
the selection of land in this succession, had designated cer- 
tain fields for cultivation on account of their chemical pe- 
culiarities and excluded others. What decided the point in 
this case was the opportunity which tempted the thieves, it 
was the more or less plausible pretenses offered by the great 
landlords to excuse their appropriation of such lands. 

Fourth. Aside from the fact that the stage of develop- 
ment reached at any time by the increased population and 
capital sets a certain barrier to the extension of cultivation, 
even though it be an elastic barrier, and aside from the effects 
of accidents, which temporarily influence the market price, 
such as a series of good or bad seasons, the extension of agri- 
culture over a larger area depends upon the entire condition 
of the market in capitals and upon the business condition of 
the whole country. In periods of stringency it will not be 
enough that uncultivated soil may produce the average profit 
for the tenant — no matter whether he pays any rent or not 
— in order that additional capital be invested in agriculture. 
On the other hand, in periods with a plethora of capital it 
will flow into agriculture, even without any rise in market 
prices, so long as only the other normal conditions are present. 
Better soil than that hitherto cultivated would be excluded 
from competition for the sole reason that its location would 
be unfavorable, or that it would present insurmountable ob- 
stacles to its employment for the time being, or that it was 
kept out by accident. Tor this reason we must occupy our- 
selves with soils which are just as good as those last culti- 
vated. ISTow there is always the difference in the cost of 
clearing for cultivation between the new soil and the last 
cultivated one. And it depends upon the stand of market 
prices and of credit whether new land is cleared or not. 
As soon as this soil actually enters into competition, the 
market price falls once more to its former level, assuming 
other conditions to be equal, and the new soil will then pro- 
duce the same rent as the corresponding soil formerly culti- 
vated as the last. The theory that it does not produce any 



896 Capitalist Production. 

rent is proved by its champions by assuming wbat tbey are 
j)recisely called upon to prove, namely that the soil which 
used to be the last did not pay any rent. One might prove 
in the same way that the houses which were built last do 
not produce any rent except the house rent proper, al- 
though they are leased. In fafct, however, they do produce 
a rent even before they yield any house rent, for they often 
stand vacant for a long time. Just as successive investments 
of capital in a certain piece of land may bring a proportional 
surplus and thereby the same rent as the first investment, so 
fields of the same quality as those last cultivated may bring 
the same yield at the same cost. Otherwise it would be al- 
together inexplicable, how fields of the same quality could 
ever be taken successively under cultivation, and not all of 
them at the same time, or rather not a single one of them in 
order to avoid their coming into competition at all. The 
landlord is always ready to draw a rent, in other words, to 
receive something for nothing. But capital requires certain 
conditions before it can comply with this wish of the land- 
lord. The competition of the lands among themselves does 
not, therefore, depend upon the wish of the landlord that 
they should, but upon the opportunities offered to capital for 
competition with other capitals upon the new fields. 

To the extent that the agricultural rent proper is purely 
a monopoly price, such a price can only be small, just as the 
absolute rent can only be small under normal conditions, 
whatever may be the surplus of the product's value over its 
price of production. The nature of absolute rent, therefore, 
consists in this: Equally large capitals in different spheres 
of production produce, according to their different average 
composition, so long as the rate of surplus-value, or the de- 
gree of labor exploitation, is the same, different amounts of 
surplus-value. In industry these different masses of surplus- 
value are leveled into an average profit and distributed among 
the individual capitals uniformly and as aliquot parts of the 
social capital. Private property in land prevents such an 
equalization among capitals invested in the soil, whenever 
production requires real estate, either for agriculture or for 



Absolute Ground-Rent 897 

the extraction of raw materials, and catches a portion of the 
surplus value which would otherwise assist in the formation 
of the average rate of profits. The rent, then, forms a por- 
tion of the value, or more specifically of the surplus-value, 
of commodities and instead of falling into the hands of the 
capitalists, who extract it from their laborers, it is captured 
by the landlords, who extract it from the capitalists. The 
assumption is in this case that the agricultural capital sets 
more labor in motion than an equally large portion of the 
non-agricultural capital. How far the difference goes, or 
whether it exists at all, depends upon the relative develop- 
ment of agriculture as compared to industry. In the nature 
of the case this difference must decrease with the progress of 
agriculture, unless the proportion, in which the variable capi- 
tal decreases as compared to the constant, is still greater in 
the industrial than in the agricultural capital. 

This absolute rent plays an even more important role in 
the extractive industry, properly so-called, where one element 
of constant capital, the raw material, is wholly missing, and 
where, with the exception of those lines, in which the capital 
consisting of machinery and other fixed capital is very con- 
siderable, by far the lowest composition of capital exists. 
Precisely here, where the rent seems wholly due to a monopoly 
price, extraordinarily favorable market conditions are neces- 
sary in order that commodities may be sold at their value, 
or that rent may become equal to the entire excess of surplus- 
value in a commodity over its price of production. This ap- 
plies, for instance, to rent in fishing waters, stone quarries, 
naturally grown forests, etc.^^'' 



CHAPTEE XLVI. 

BUILDING LOT EENT. MINING RENT. PRICE OF LAND. 

Differential rent appears every time and follows the same 
laws as the agricultural differential rent, wherever rent ex- 

^^ Ricardo passes over this very superficially. See his remarks against Adam 
Smith on Forest rent in Norway, in Principles, chapter II, in the beginning. 

3E 



898 Capitalist Production. 

ists at all. Wherever natural forces can be monopolized and 
thereby guarantee a surplus profit to the industrial capitalist 
using these forces, whether it be waterfalls, or rich mines, 
or waters teeming with fish, or a favorably located building 
lot, there the person who by his or her title to a portion of the 
globe has been privileged to own these things will capture a 
part of the surplus profit of the active capital by means of 
rent. Concerning mining lands, Adam Smith has explained 
that the basis of their rent, like that of all land not employed 
in agriculture, is regulated by the agricultural rent (Book I, 
Chapter, XI, 2 and 3). This form of rent is distinguished, 
first, by the overwhelming influence exerted by location upon 
differential rent (an influence which is very considerable in 
vineyards and in building lots of large cities) ; secondly, by 
the palpable passiveness of the owner, whose sole activity 
consists (especially in mines) in exploiting the progress of 
social development, toward which he contributes nothing and 
for which he risks nothing, unlike the industrial capitalist ; 
and finally by the preponderance of the monopoly price in 
many cases, particularly by the most shameless exploitation 
of poverty (poverty is for house rent a more lucrative source 
than the mines of Potosi ever w^ere for Spain ^^^ and by the 
tremendous power wielded by private property in land when 
united with industrial capital in the same hand and used 
for the purpose of practically excluding the laborers in their 
struggle for wages from the earth as a place of domicile. ^^^ 
One section of society thus exacts from another a tribute for 
the permission of inhabiting the earth. Private property in 
land implies the privilege of the landlord to exploit the 
body of the globe, the bowels of the earth, the air, and with 
them the conservation and development of life. Not only 
the increase of population, and with it the growing demand 
for shelter, but also the development of fixed capital, which is 
either incorporated in the soil or takes root in it and is based 
upon it, such as all industrial buildings, railroads, warehouses, 
factory buildings, docks, etc., necessarily increase the building 

^^' Laing, Newman 

^^2 Crowlington Strike. Engels, The Condition of the Working Class In England, 
page 256, Swan Sonnenschein edition. 



Building Lot Rent. 899 

rent. A mistake between the house rent, to the extent that 
it is an interest and mortgage upon the capital invested in a 
house, and the rent for the mere land is not possible in this 
case, even with all the good will of a Carey, particularly when 
the landlord and the building speculator are different persons, 
as they are in England. Two elements should be considered 
here : On the one hand, the exploitation of the earth for the 
purpose of reproduction or extraction, on the other hand the 
space required as an element of all production and all human 
activity. Private property in land demands its tribute in 
both directions. The demand for building lots raises the value 
of the land as a building ground and foundation, and the 
simultaneous demand for elements of the terrestrial globe 
serving as building material grows with it.^^^ 

That it is the ground-rent, and not the house, which forms 
the actual object of building speculation in rapidly growing 
cities, especially when building is carried on as an industry, 
as it is in London, we have already shown in Volume II, 
Chapter XII, pages 266-267, of the present work, where we 
quoted from the testimony of a large London building specu- 
lator, Edward Capps, given before the Select Committee on 
Bank Acts. The same man said on that occasion, ISTo. 5435 : 
I believe that a man who wants to get on in the world can 
hardly expect to get along by sticking to a fair trade. 
He must of necessity build also on speculation, and that on 
a large scale; for the contractor makes very little profit out 
of the buildings themselves, he makes his principal profits 
out of the rise of ground-rents. He takes up, for instance, 
a piece of land and pays 300 pounds sterling annually for it. 
If he erects the right class of houses upon it after a careful 
building plan, he may succeed in making 400 or 500 pounds 
sterling out of it, and his profit would consist much more of 
the increased ground-rent of 100 or 150 pounds sterling an- 
nually than of the profit from the buildings, which in many 
cases he does not consider at all. 

And it should not be forgotten that after the lapse of the 

^5^ The paving of the London streets has enabled the proprietors of some naked 
focks on the Scotch coast to draw a rent out of formerly absolutely useless stone 
soil. Adam Smith, Book I, Chapter XI, 2. 



900 Capitalist Production. 

lease, at the end of 99 years, as a rule, the land with all the 
buildings upon it and with the ground-rent, generally in- 
creased to twice or thrice its original amount, reverts from the 
building speculator or from his legal successor to the original 
landlord who was the last to rent it. 

The mining rent, in its strict meaning, is determined in the 
same way as the agricultural rent. 

There are some mines, the product of which barely suffices 
to pay for the labor and to reproduce the capital invested in 
it together with the ordinary profit. They yield some profit 
to the contractor, but no rent to the landlord. They can be 
worked to advantage only by the landowner, who in his 
capacity of a contractor makes the ordinary profit out of his 
invested capital. Many coal mines in Scotland are operated 
in this way, and cannot be operated in any other way. The 
landowner does not permit anybody to work them without the 
payment of rent, but no one can pay any rent for them. 
(Adam Smith, Book I, Chapter XI, 2.) 

It is necessary to distinguish, whether the rent flows from 
a monopoly price, because a monopoly price of the product 
or of the soil exists independently of it, or whether the prod- 
ucts are sold at a monopoly price, because a rent exists. When 
we speak of a monopoly price, we mean in a general way a 
price which is determined only by the eagerness of the pur- 
chasers to buy and by their solvency, independently of the 
price which is determined by the general price of production 
and by the value of the products. A vineyard producing wine 
of very extraordinary quality, a wine which can be produced 
only in a relatively small quantity, carries a monopoly price. 
The winegrower would realize a considerable surplus profit 
from this monopoly price, the excess of which over the value 
of the product would be wholly determined by the wealth and 
the fine appetite of the rich wine drinkers. This surplus 
profit, which flows from a monopoly price, is converted into 
rent and in this form falls into the hands of the landlord, 
thanks to his title to this piece of the globe, which is endowed 
with peculiar properties. Here, then, the monopoly price 



Price of Land. 901 

creates the rent. On the other hand, the rent would create 
a monopoly price, if grain were sold not merely above its 
price of production, but also above its value, owing to the 
barrier erected by the private ownership of the land against 
the investment of capital upon uncultivated soil without the 
payment of rent. That it is only the title of a number of 
persons to the possession of the globe which enables them to 
appropriate a portion of the surplus labor of society to them- 
selves, and to do so to an increasing extent with the develop- 
ment of production, is concealed by the fact that the capi- 
talized rent, this capitalized tribute, appears as the price of 
the land, and that the land may be sold like any other article 
of commerce. The buyer, therefore, does not feel that his 
title to the rent is obtained gratis, and without the labor, the 
risk, and the spirit of enterprise of the capitalist, but rather 
that he has paid for it with an equivalent. To the buyer, as 
we have previously remarked, the rent appears merely as in- 
terest on the capital, with which he has bought the land and 
consequently his title to the rent. In the same way, the slave- 
holder considers a negro, whom he has bought, his property, 
not because slavery as such entitles him to that negTo, but 
because he has acquired him just as he does any other com- 
modity, by means of sale and purchase, but the title itself is 
only transferred, not created by sale. The title must exist, 
before it can be sold, and a series of sales cannot create this 
title by repetition any more than one single sale can. It was 
created in the first place by the conditions of production. As 
soon as these have arrived at a point, where they must shed 
their skin, the material source of the title, justified eco- 
nomically and historically and arising from the process which 
creates the material requirements of life, falls to the ground, 
and with it all transactions based upon it. From the point 
of view of a higher economic form of society, the private 
ownership of the globe on the part of some individuals will 
appear quite as absurd as the private ownership of one man 
by another. Even a whole society, a nation, or even all 
societies together, are not the owners of the globe. They are 



902 Capitalist Production. 

only its possessors, its users, and they have to hand it down 
to the coming generations in an improved condition, like good 
fathers of families. 



In the following analysis of the price of land we leave out 
of consideration all fluctuations of competition, all land specu- 
lation, and small landed property, in which the land is the 
principal instrument of the producers and must, therefore, be 
bought by them at any price. 

I. The price of land may rise, although the rent may not 
rise with it. This may take place, 

1) by a mere fall of the rate of interest, which may cause 
the rent to be sold more dearly, so that the capitalized rent, 
the price of land rises ; 

2) because the interest of the capital incorporated in the 
land rises. 

II. The price of land may rise, because the rent increases. 
The rent may increase, because the price of the product of 

the land rises, in which case the rate of differential rent 
always rises, whether the rent upon the worst cultivated soil 
be large, small or nonexistent. But by the rate we mean the 
ratio of that portion of surplus-value, which is converted into 
rent, to the invested capital, Avhich produces the product of the 
soil. This differs from the ratio of the surplus product to 
the total product, for the total product does not comprise the 
entire invested capital, namely not the fixed capital, which 
continues to exist by the side of the product. But it includes 
the fact that upon the soils carrying a differential rent an 
increasing portion of the product is converted into an overplus 
of a surplus product. Upon the worst soil the increase in 
the price of the product of the soil first creates a rent and con- 
sequently a price of land. 

But the rent may also increase without a rise in the price of 
the product of the soil. This price may remain unaltered, 
or may even decrease. 

If the price remains constant, the rent can grow only (aside 
fr(m monopoly prices) because, on the one hand, the same 



Price of Land. 903 

amount of capital remains invested in the older lands, while 
new lands of a better quality are cultivated, which, however, 
suffice only to cover the increased demand, so that the regulat- 
ing market price remains unchanged. In this case the price 
of the old lands does not rise, but the price of the newly culti- 
vated lands rises above that of the older lands. 

Or, on the other hand, the rent rises because the mass of the 
capital exploiting the land increases, while the relative produc- 
tivity and the market price remain the same. Although the 
rent remains the same in this case, compared to the invested 
capital, still its mass, for instance, may be doubled, because 
the capital itself has doubled. Since no fall in the price has 
occurred, the second investment of capital yields a surplus 
profit as well as the first^ and it likewise is converted into rent 
after the expiration of the lease. The mass of the rent rises 
here, because the mass of capital producing a rent increases. 
The contention that different investments of capital in suc- 
cession upon the same piece of land can produce a rent only 
to the extent that their yield is unequal, so that a differential 
rent arises^ amounts to the contention that when two capitals 
of 1,000 pounds sterling each are invested upon fields of equal 
productivity, only one of them can produce a rent, although 
these fields belong to the better class of soil, which produces a 
differential rent. (The mass of the rental, the total rent of a 
certain country, grows therefore with the mass of capital in- 
vested, although the price of the individual pieces of land, or 
the rate of rent, or the mass of rent upon the individual 
pieces of land, does not necessarily increase; the mass of the 
rental grows in this case with the extension of cultivation over 
a wider area. This may even be combined with a fall of the 
rent upon the individual holdings.) On the other hand, this 
contention would lead to another, to the effect that the invest- 
ment of capital upon two different pieces of land side by side 
follows different laws than the successive investment of capi- 
tal upon the same piece of land, whereas differential rent is 
precisely derived from the identity of the law in both cases, 
that is, from the increased productivity of investments of cap- 
ital either upon the same field or upon different fields. The 



904 Capitalist Production. 

only modification which exists here and is overlooked is that 
successive investments of capital, when invested upon different 
pieces of land, meet the barrier of private ownership of land, 
which is not the case with successive investments of capital 
upon the same piece of land. This accounts for the opposite 
effects, by which these two forms of investments keep each 
other in check in practice. Whatever difference appears here 
is not due to capital. If the composition of the capital re- 
mains the same^ and with it the rate of surplus-value, then 
the rate of profit remains unaltered^, so that the mass of 
profits is doubled when the capital is doubled. In like man- 
ner the rate of rent remains the same under the conditions 
assumed by us. If a capital of 1,000 pounds sterling produces 
a rent of x, then a capital of 2,000 pounds sterling, under the 
assumed conditions, produces a rent of 2 x. But calculated 
with reference to the area of land, which has remained un- 
altered, since the doubled capital works upon the same field, 
according to our assumption, the level of the rent has risen 
together with its mass. The same acre, which brought a 
rent of 2 pounds sterling, now brings 4 pounds sterling.^ ^^ 

The relation of a portion of the surplus-value, of money 
rent — for money is the independent expression of value — to 
the land is in itself absurd and irrational. For the magni- 
tudes, which are here measured by one another, are incom- 
mensurable, a certain use-value, a piece of land of so and so 
many square feet on the one hand, and of so much value, 
especially surplus-value, on the other. This expresses in fact 

^^* It is one of the merits of Rodbertus whose important work on rent we shall 
discuss in volume IV (" Theories of Surplus-Value," volume II, Part I), to have 
enlarged upon this point. He commits the mistake, however, to assume, in the first 
place, that in the case cut capital the increase in profits is always expressed by an 
increase of capital, so that the ratio remains the same, when the mass of the profits 
increase. But this is an error, since the rate of profit may increase when the 
composition of the capital is changed, even if the exploitation of labor remains the 
same, just because the proportional value of the constant portion of capital, com- 
pared to its variable portion, may fall. In the second place he commits the mistake 
of dealing with the ratio of the money rent to a quantitatively limited piece of 
land, for instance to an acre, as though it had been the general assumption of 
classic economics in its analysis of the rise or fall of rent. This, again, is wrong. 
Classic economics always treats the rate of rent, so far as it considers rent in its 
natural form, with reference to the product, and so far as it considers rent as 
money rent, with reference to the advanced capital, because these are in fact its 
rational expressions. 



Price of Land. 905 

nothing else but that, under the existing conditions, the owner- 
ship of so and so many square feet of land enables the land- 
owner to catch a certain quantity of unpaid labor, which cap- 
ital wallowing in square feet like a hog in potatoes has realized 
[The manuscript here has in brackets, but crossed out, the 
name " Liebig."] But on first sight the expression is the 
same as though some one were to speak of the relation of a 
five-pound note to the diameter of the earth. However, the 
reconciliation of the irrational forms, in which certain eco- 
nomic conditions appear and assert themselves in practice, 
does not concern the active agents of these relations in their 
every day life. And as they are accustomed to moving about 
in them, they do not find anything strange about them. A 
complete contradiction has not the least mystery for them. 
They are as much at home among the manifestations which, 
separated from their internal connections and isolated by them- 
selves, seem absurd, as a fish in the water. The same thing 
that Hegel says with reference to certain mathematical 
formulae applies here. The thing which seems irrational to 
ordinary common sense is rational, and what seems rational 
to it is irrational. 

When considered in connection with the land area itself, 
a rise in the mass of the rent expresses itself in the same way 
that a rise in the rate of the rent does, and this accounts for 
the embarrassment caused to some thinkers when the condi- 
tions, which would explain the one case, are absent in the 
other. 

Finally, the price of land may also rise, even when the price 
of the products of the soil decreases. 

In this case, the differential rent and with it the price of 
land of the better classes may have risen, owing to further dif- 
ferentiations. Or, if this should not be the case, the price of 
the products of the soil may have fallen through a greater 
productivity of labor, but in such a way that the increased 
productivity more than balances this. Let us assume that 
one quarter cost 60 shillings. ISTow, if the same acre, with the 
same capital, should produce two quarters instead of one, and 
the price of one quarter should fall to 40 shillings, then two 



9o6 Capitalist Production. 

quarters would cost 80 shillings, so tliat the value of the prod- 
uct of the same capital upon the same acre would have risen 
by one-third, although the price per quarter would have fallen 
by one-third. How this is possible without selling the prod- 
uct above its price of production or above its value, has been 
shown in the analysis of differential rent. As a matter of 
fact it is possible only in two ways. Either some bad soil is 
placed outside of competition, but the price of the better soil 
increases with the increase of differential rent, owing to the 
fact that the general improvement affects the various kinds 
of soil differently. Or, the same price of production (and 
the same value, in case absolute rent should be paid) ex- 
presses itself upon the worst soil through a larger mass of 
products, when the productivity of labor has become greater. 
The product represents the same value as before, but the price 
of its aliquot parts has fallen, while their number has in- 
creased. This is impossible, when the same capital has been 
employed; for in this case the same value always expresses 
itself through any portion of the product. It is possible, on 
the other hand, when additional capital has been used for 
gypsum, guano, etc., in short for improvements which ex- 
tend their effects over several years. The premise is that 
the price of the individual quarter falls, but not to the same 
extent that the number of quarters increases. 

III. These different conditions under which rent may 
rise and with it the price of land in general, or of particular 
kinds of land, may partly exist side by side and compete, or 
the one may exclude the other, so that they act alternately. 
But it follows from the foregoing that it will not do to con- 
clude offhand that a rise in the price of land signifies also a 
rise of rent, or that a rise of rent, Avhich always carries with 
it a rise in the price of land, also signifies a rise in the price 
of the products of the land.^^^ 



Instead of tracing to their source the natural causes which 
lead to an exhaustion of the soil, and which, by the way, were 

1" Concerning a fall in the price of land as a fact when the rent rises, see Passy. 



Price of Land. 907 

■unknown to all economists who have written anything on dif- 
ferential rent, owing to the condition of agricultural chemistry 
in their day, the shallow conception has been advanced, that 
any amount of capital cannot be invested in a limited space 
of land. For instance, the '' Westminister Bevieiu " main- 
tained against Richard Jones, that all England could not be 
fed by cultivating Soho Square. If this is considered a 
special disadvantage of agriculture, it is precisely the opposite 
which is true. It is possible to invest capital successively 
with good results, because the soil itself serves as a means 
of production, which is not the case with a factory, or is true 
of it only to a limited extent, since there the land serves only 
as a basis, as a space, as a foundation for operations upon 
a certain area. It is true that, compared to scattered handi- 
crafts, great industries may concentrate large productive 
plants in a small space. But even so, a definite space is 
always required at any stage of development, and the building 
of high structures has its practical limits. Beyond these 
limits any expansion of production demands also an extension 
of the land area. The fixed capital invested in machinery, 
etc., does not improve through use, but on the contrary, it 
wears out. jSTew inventions may, indeed permit some 
improvement in this respect, but with any given development 
of the productive power the machine will always deteriorate. 
If the productive power is rapidly developed, the entire old 
machinery must be replaced by a better one, so that the old 
is lost. But the soil, if properly treated, improves all the 
time. The advantage of the soil is that successive invest- 
ments of capital may bring gains without losing the older 
ones, and this implies the possibility of differences in the 
yields of these successive investments of capital. 



9o8 Capitalist Production. 



CHAPTER XLVII. 

G-ENESIS OF CAPITALIST GKOUND-EENT. 

I. Introductory Bemarhs. 

We must be clear in our minds about tbe real difficulty in 
the analysis of ground-rent from the point of view of modern 
economics, to the extent that it is a theoretical expression of 
the capitalist mode of production. Even many of the more 
modem writers have not grasped this yet, as is shown by every 
renewed attempt to find a " new " explanation of ground-rent. 
The novelty consists almost always in a relapse into long 
outgro\vn conceptions. The difficulty is not to explain the 
surplus product and the surplus-value produced by agricul- 
tural capital. This question is solved by the general analysis 
of the surplus-value produced by all productive capital, no 
matter in what sphere it may be invested. The difficulty 
consists rather in demonstrating the source of the surplus 
over and above the general surplus-value paid by capital in- 
vested in the soil to the landlord in the form of rent after 
the general surplus-value has been distributed among the 
various capitals by means of the average profit, in other 
words, after the various capitals have shared in the total sur- 
plus-value produced by the social capital in all spheres of 
production in proportion to their relative size. Quite aside 
from the practical motives, which urged the modern econ- 
omists as spokesmen- of the industrial capitalists against the 
landlords to investigate this question, motives which we shall 
indicate more clearly in the chapter on the history of gTOund- 
rent, the question was of paramount interest for them as a 
theory. To admit that the rising of rent for capital invested 
in agriculture was due to some particular eifect of the sphere 
of investment, to peculiar qualities of the land itself, was 
equivalent to giving up the conception of value as such, 



Genesis of Capitalist Ground-Rent. 909 

equivalent to abandoning all attempts at a scientific under- 
standing of this field. Merely the simple observation that 
the rent is paid out of the price of the products of the soil, a 
thing which takes place even where rent is paid in kind, 
provided that the tenant is to get his price of production out 
of the land, showed the absurdity of the attempt to explain 
the excess of this price over the ordinary price of production, 
in other words, to explain the relative dearness of the prod- 
ucts of agriculture out of the excess of the natural produc- 
tivity of agricultural industry over the productivity of the 
other lines of industry. For the reverse is true. The more 
productive labor is, the cheaper is every aliquot part of its 
product, because the mass of use-values is so much greater, 
in which the same quantity of labor and with it the same 
value is incorporated. 

The entire difiiculty in the analysis of rent, therefore, 
consists in the explanation of the excess of agricultural profit 
over the average profit. It is not a question of surplus-value 
as such, but of the peculiar surplus of surplus-value found 
in this sphere of production, not a question of the " net 
product," but of the excess of this net product over the net 
product of the other lines of industry. The average profit 
itself is a product, formed under very definite historical con- 
ditions of production by the movement of the proqess of social 
life, a product which requires very far-reaching interrelations, 
as we have seen. In order that we may be able to speak at 
all of a surplus over the average profit, this average profit 
itself must already exist as a standard and as a regulator 
of production, such as it is under capitalist production. Eor 
this reason there can be no such thing as a rent in the modem 
sense, a rent consisting of a surplus over the average profit, 
over and above the proportional share of each individual cap- 
ital in the total surplus-value produced by the entire social cap- 
ital, so long as capital does not perform the function of enforc- 
ing all surplus-labor and appropriating at first hand all surplus- 
value, so long as capital has not yet brought under its control 
the social labor, or has done so only sporadically. It shows 
the naivete of a man like Passy (see further along) that he 



910 Capitalist Production. 

speaks of a rent, a surplus over the profit, in primitive 
society, a surplus over and above a historically defined form 
of surplus-value, which, according to Passy, might almost exist 
without any society. 

For the older economists, who make the first beginning in 
an analysis of the capitalist mode of production, which was 
still undeveloped in their day, the analysis of rent either 
offers no difiiculty, or a difficulty of another sort. Petty, 
Cantillon, and in general the writers who are closer to feudal 
times, assume that ground-rent is the normal form of surplus- 
value, whereas profit to them is still vaguely combined with 
wages, or at best looks to them like a portion of surplus-value 
filched by the capitalist from the landlord. These writers 
take their departure from a condition, in which the agricul- 
tural population still constitutes the overwhelming majority 
of the nation, and in which the landlord still appears as the 
individual, who appropriates at first hand the surplus labor 
of the direct producers through his land monopoly, i'n which 
land therefore still appears as the chief requisite of produc- 
tion. These writers could not yet face the question, which, 
contrary to them, seeks to investigate from the point of view 
of capitalist production, how it happens that private owner- 
ship in land manages to wrest from capital a portion of the 
surplus-value produced by it at first hand (that is, filched 
by it from the direct producers) and first appropriated by 
it. 

The physiocrats are troubled by a difficulty of another 
kind. Being in fact the first systematic spokesman of capi- 
tal, they try to analyze the nature of surplus-value in general. 
This analysis coincides for them with the analysis of rent, 
the only form of surplus-value that exists for them. There- 
fore the rent-paying, or agricultural capital, is to them the 
only capital which produces any surplus-value, and the agri- 
cultural labor set in motion by it the only labor which makes 
for surplus-value, which quite correctly is considered the only 
productive labor from a capitalist point of view. They are 
right in considering the production of surplus-value as the 
essential thing. Aside from other merits set forth by us in 



Genesis of Capitalist Ground-Rent. 911 

the volume dealing with " Theories of Surplus-Value " they 
have the great merit of going back from the merchants' cap- 
ital, which performs its functions wholly in the sphere of 
circulation, to the productive capital. In this they are op- 
posed to the,mercantile system, which, with its crude realism, 
constitutes the dominating vulgar economy of that time 
pushing the beginnings of scientific analysis by Petty and his 
successors into the background by means of its practical in- 
terests. By the way, in this critique of the mercantile system 
we aim only at its conceptions of capital and surplus-value. 
We have already indicated previously that the monetary sys- 
tem correctly proclaims production for the world market and 
the transformation of the product into commodities, and thus 
into money, as the prerequisite and condition of capitalist 
production. In the further development of this system into 
the mercantile system, it is no longer the transformation of 
the value of commodities into money, but the production of 
surplus-value, which decides the point, but merely from the 
meaningless point of view of the sphere of circulation and 
with the understanding that this surplus-value must present 
itself as surplus money in the surplus of the balance of 
trade. The characteristic mark of the interested merchants 
and manufacturers of that time, which is adequate to the 
period of capitalist development represented by them, 
is found in the fact that their principal aim in the transfor- 
mation of the feudal and agricultural societies into industrial 
ones and in the corresponding industrial struggle of the 
nations upon the world market is a hastened development of 
capital, which is not supposed to take place in the so-called 
natural way, but by means of forced measures. It makes a 
tremendous difference, whether the national capital is gTad- 
ually and slowly transformed into industrial capital, or 
whether the time of this development is hastened by means 
of a tax which they impose through protective duties mainly 
upon the real estate owners, the middle class and small 
farmers, and the handicraftsmen, by the accelerated expropria- 
tion of the independent direct producers, by a violently 
hastened accumulation and concentration of capitals, in short 



QI2 Capitalist Production. 

by a hastened introduction of the conditions of capitalist pro- 
duction. It makes at the same time an enormous difference 
in the capitalist and industrial exploitation of the natural 
powers of national production. Hence the national character 
of the mercantile system is not a mere phrase in the mouths 
of its spokesmen. Under the pretense of occupying them- 
selves merely with the wealth of the nation and the resources 
of the state, they practically proclaim the interests of the cap- 
italist class and the gathering of riches to be the ultimate 
end of the state, and so they proclaim bourgeois society against 
the old supernatural state. But at the same time they are 
conscious of the fact that the development of the interests of 
capital and of the capitalist class, of capitalist production, is 
the foundation of the national power and of the national pre- 
ponderance in modern society. 
/' The physiocrats are, furthermore, correct in stating that 
/ the production of surplus-value, and with it all development 
' of capital, has for its natural basis the productivity of agri- 
I cultural labor. If human beings are not capable of produc- 
ing by one day's labor more means of subsistence, which signi- 
fies in its strictest sense more products of agriculture, than ev- 
ery laborer needs for his own reproduction, if the daily expen- 
diture of his entire labor-power suffices only to produce the 
means of subsistence indispensable for his own individual 
needs, then there can be no mention of any surplus product 
nor of any surplus-value. A productivity of agricultural 
labor exceeding the individual requirements of the laborer is 
the basis of all societies, and is above all the basis of capi- 
talist production, which separates a continually increasing 
portion of society from the production of the immediate re- 
quirements of life and transforms them into " free heads," 
as Steuart has it;, making them available for exploitation in 
! other spheres. 

But what are we to say of more recent writers on eco- 
nomics, such as Daire, Passy, etc., who repeat the most prim- 
itive conceptions concerning the natural requirements of sur- 
plus labor and surplus-value in general, at a time when classic 
economy is in its declining years, or even on its deathbed, 



Genesis of Capitalist Ground-Rent. 913 

and who imagine that they are thus saying something new 
and convincing on ground-rent, after this ground-rent has long 
developed a peculiar form and has become a specific part of 
surplus-value ? 

It is precisely characteristic of vulgar economy that it 
repeats things which were new, original, deep and justified 
during a certain outgrown stage of development, at a time 
when they have become platitudinous, stale, false. In this 
way it confesses that it has not the slightest suspicion of the 
problems which used to occupy the attention of classic econ- 
omy. It confounds them with questions that could be 
posed only on a low level in the development of bourgeois 
society. It is the same with its restless and self-complacent 
rumination of the physiocratic phrases concerning free trade. 
These phrases have long lost all theoretical interest, no mat- 
ter how much they may engage the practical attention of this 
or that modern state. 

In natural economy, properly so-called, when no part of 
the agricultural product, or but a very insignificant part of it, 
enters into the process of circulation, or even but a relatively 
small portion of that part of the product which represents 
the revenue of the landlord, as it did in many Roman latifun- 
dise, or upon the villae of Charlemagne, or more or less 
during the entire Middle Ages (see Vincard, Histoire du 
Travail), the product and the surplus product of the large 
estates consists by no means purely of the products of agri- 
cultural labor. Domestic handicrafts and manufacturing 
labor, as side issues to agriculture, which forms the basis, is 
the prerequisite of that mode of production upon which nat- 
ural economy rests, in European antiquity and Middle Ages 
as well as in the Indian commune of the present day, in 
which the traditional organization has not yet been destroyed. 
The capitalist mode of production completely dissolves this 
connection. This process may be studied on a large scale 
during the last third of the 18th century, in England. 
Brains that had grown up in more or less semi-feudal 
societies, for instance Herrenschwand, still consider this sepa- 
ration of manufacture from agriculture as a foolhardy social 



914 Capitalist Production. 

adventure, as an nnthinkably risky mode of existence, even 
as late as the close of the 18th century. And even in the 
agricultural societies of antiquity, which show the greatest 
analogy to capitalist agriculture, namely Carthage and Rome, 
the similiarity with plantation management is greater than 
with that form which really corresponds to the capitalist 
mode of exploitation. ^^^ 

There existed at one time a formal analogy, which, how- 
ever, appears as a deception in all essential points to a man 
familiar with the capitalist mode of production, and who does 
not, like Mr. Mommsen,^^''' discover a capitalist mode of pro- 
duction in every monetary economy. This formal analogy 
did not exist at all in continental Italy during antiquity, but 
at best only in Sicily, because this island served as an agri- 
cultural tributary for Rome, so that its agriculture was 
chiefly aimed at export. It was there that tenants of the 
modern kind existed. 

An incorrect conception of the nature of rent is based upon 
the fact that rent in a natural form, either as tithes to the 
church, or as a curiosity perpetuated by old contracts, has 
dragged itself into modern times out of the natural economy 
of feudal days, quite contrary to the conditions of the capi- 
talist mode of production. This creates the impression that 
rent does not arise from the price of the agricultural product, 
but from its mass, not from social conditions, but from the 
soil. We have shown previously that a surplus product, rep- 
resenting a mere increase in the mass of products, does not 
constitute any surplus-value, although surplus-value represents 
itself in a surplus product. A surplus product may rep- 
resent a minus in value. Otherwise the cotton industry of 

^^° Adam Smith emphasizes the fact that at his time (and this applies also to 
the plantations in tropical and subtropical countries in our own time) rent and 
profit were not yet separated, for the landlord was at the same time a capitalist, 
just as Cato, for instance, was upon his estates. But this separation is precisely 
the premise of the capitalist mode of production. Moreover, the basis of slavery 
stands in contradiction with the nature of capitalist production. 

"' Mr. Mommsen, in his Roman history, does not use the term capitalist in the 
sense in which modern economics and modern society does, but rather in the way pe- 
culiar to popular conception, such as still continues to vegetate, not in England 
or America, but upon the European continent, as an ancient tradition of past 
conditions. 



Genesis of Capitalist Ground-Rent. 915 

1860, compared to that of 1840, would represent an enormous 
surplus-value, whereas on the contrary the price of the yarn 
has fallen. The rent may increase enormously through a 
succession of crop failures, because the price of cereals rises, 
although this surplus-value is represented by an absolutely 
decreasing mass of dearer wheat. Vice versa, the rent may 
fall through a succession of fertile years, because the price 
falls, although the fallen rent is represented by a greater 
mass of cheaper wheat. 

With regard to rent in kind it should be noted that it is a 
mere tradition dragged over from an outgrown mode of produc- 
tion and eking out an existence as a ruin. Its contradiction to 
the capitalist mode of production is shown by the fact that 
it disappeared from private contracts of its own accord, and 
that it was shaken off by force as an inconsistency in such in- 
stances as the church tithes in England, where legislation 
was able to step in. Furthermore, where rent in kind con- 
tinued to exist on the basis of capitalist production, it was 
nothing else, and could be nothing else, but an expression of 
money rent in medieval garb. For instance, wheat is quoted 
at 40 shillings per quarter. One portion of this wheat has to 
reproduce the wages contained in it, and must be sold in 
order to be available for renewed expenditure. Another por- 
tion must be sold in order to pay its share of the taxes. 
Seeds and even a part of the manure enter as commodities 
into the process of reproduction, wherever the capitalist 
mode of production and division of labor are developed, and 
they must be bought for the purposes of reproduction. There- 
fore another portion of this quarter must be sold, in order 
to get money for these things. To the extent that they do 
not have to be bought as actual commodities, but are taken 
in their natural form out of the product, in order to enter 
once more as means of production into its reproduction — 
which is done, not only in agriculture, but in many other 
lines of production which create constant capital — they 
figure in the accounts as money of account and are thus de- 
ducted as component parts of the cost-price. The wear and 
tear of machinery, and of fixed capital in general, must be 



9i6 Capitalist Production. 

made good in money. And finally comes the profit, whicli 
is calculated on the basis of this sum of costs expressed either 
in real or in accounting money. This profit is represented by 
a definite portion of the gross product, which is determined 
by its price. The portion which then remains is the rent. 
If the rent in kind stipulated by contract is greater than 
this remainder determined by the price, then it is not a rent, 
but a deduction from the profit. On account of this possi- 
bility alone rent in kind is an old form, to the extent that 
it does not follow the price of the product, but may amount 
to more or less than the real rent, so that it may not only 
contain a deduction from the profit, but also from elements 
required for the reproduction of the capital. In fact, this 
rent in kind, so far as it is a rent, not merely in name but in 
essence, is exclusively determined by the excess of the price 
of the product over its cost of production. Only it assumes 
this variable magnitude to be a constant one. But it is such 
a comforting reflection that the natural product should suf- 
fice, in the first place, to maintain the laborer, in the second 
place, to leave for the capitalist tenant more food than he 
needs, and finally, that the remainder should form a natural 
rent. The same fancy is indulged in when a manufacturer 
of cotton goods produces 200,000 yards of them. These yards 
are supposed to suffice for the purpose of clothing his labor- 
ers, his wife and all his offspring, together with himself 
abundantly, to leave over some cotton for sale, and besides 
to pay an enormous rent with cotton goods. The matter is 
so simple! Deduct the cost of production from 200,000 
yards of cotton goods, and a surplus must remain for rent. 
But it is indeed a naive conception, to deduct the cost of pro- 
duction of, say, 10,000 pounds sterling from 200,000 yards 
of cotton, without knowing the selling price, to deduct money 
from cotton goods, to deduct from a natural use-value an ex- 
change-value, and thus to determine the surplus of yards of 
cotton goods over pounds of sterling. It is worse than the 
squaring of the circle, which is at least based upon the con- 
ception that there is a boundary at which straight lines and 
curves flow imperceptibly into each other. But such is the 



Genesis of Capitalist Ground-Rent. 917 

recipe of Mr. Passy. Deduct money from cotton goods, be- 
fore the cotton goods have been converted into money, either 
in your head or in reality ! What remains is the rent, which, 
however, is to be grasped tangibly (see for instance, Karl 
Arnd) and not by deviltries of sophistry. The entire resto- 
ration of rent in kind amounts really to this foolishness, to 
this deduction of the price of production from so and so many 
bushels of wheat, the subtraction of a sum of money from a 
cubic measure. 



II. Labor Rent. 



If we observe ground-rent in its simplest form, that of la- 
bor rent, which means that the direct producer cultivates 
during a part of the week, with instruments of labor (plow, 
cattle, etc.), actually or legally belonging to him, the soil 
owned by him in fact, and works during the remaining days 
upon the estate of the feudal lord, without any compensation 
from the feudal lord, the proposition is quite clear, for in this 
case rent and surplus-value are identical. The rent, not the 
profit, is here the form through which the unpaid surplus 
labor expresses itself. To what extent the laborer, the self- 
sustaining serf, can here secure for himself a surplus above 
his indispensable necessities of life, a surplus above the thing 
which we would call wages under the capitalist mode of pro- 
duction, depends, other circumstances remaining unchanged, 
upon the proportion, in which his labor time is divided into 
labor time for himself and forced labor time for his feudal 
lord. This surplus above the indispensable requirements of 
life, the germ of that which appears as profit under the cap- 
italist mode of production, is therefore wholly determined by 
the size of the ground-rent, which in this case not only is un- 
paid surplus labor, but also appears as such. It is unpaid 
surplus labor for the " owner " of the means of production, 
vrhich here coincide with the land, and so far as they differ 
from it, are mere accessories to it. That the product of the 
laboring serf must suffice to reproduce both his subsistence 
and his requirements of production, is a fact which remains 



9i8 Capitalist Production. 

the same under all modes of production. For it is not a re- 
sult of its specific form, but a natural requisite of all con- 
tinuous and reproductive labor, of any continued production, 
which is always a reproduction, including the reproduction of 
its own labor conditions. It is furthermore evident that in 
all forms, in which the direct laborer remains the " pos- 
sessor " of the means of production and labor conditions of 
his own means of subsistence, the proj)erty relation must at 
the same time assert itself as a direct relation between rulers 
and servants, so that the direct producer is not free. This 
is a lack of freedom which may be modified from serfdom 
with forced labor to the point of a mere tributary relation. 
The direct producer, according to our assumption, is here in 
possession of his own means of production, of the material 
labor conditions required for the realization of his labor and 
the production of his means of subsistence. He carries on 
his agriculture and the rural house industries connected with 
it as an independent producer. This independence is not 
abolished by the fact that these small farmers may form 
among themselves a more or less natural commune in produc- 
tion, as they do in India, since it is here merely a question 
of independence from the nominal lord of the soil. Under 
such conditions the surplus labor for the nominal owner of 
the land cannot be filched from them by any economic meas- 
ures, but must be forced from them by other measures, what- 
ever may be the form assumed by them.^^^ 

This is different from slave or plantation economy, in that 
the slave works with conditions of labor belonging to another. 
He does not work as an independent producer. This requires 
conditions of personal dependence, a lack of personal free- 
dom, no matter to what extent, a bondage to the soil as its 
accessory, a serfdom in the strict meaning of the word. If 
the direct producers are not under the sovereignty of a pri- 
vate landlord, but rather under that of a state which stands 
over them as their direct landlord and sovereign, then rent 
and taxes coincide, or rather, there is no tax which differs 

'^ After a country had been conquered, the next step for the conquerer was 
always to take possession of the human beings also, Compare Linguet. See also 
Moser. 



Labor Rent. 919 

from this form of ground-rent. Under these circumstances 
the subject need not be politically or economically under any 
harder pressure than that common to all subjection to that 
state. The state is then the supreme landlord. The sov- 
ereignty consists here in the ownership of land concentrated 
on a national scale. But, on the other hand, no private own- 
ership of land exists, although there is both private and com- 
mon possession and use of land. 

The specific economic form, in which unpaid surplus labor 
is pumped out of the direct producers, determines the rela- 
tion of rulers and ruled, as it grows immediately out of pro- 
duction itself and reacts upon it as a determining element. 
Upon this is founded the entire formation of the economic 
community which grows up out of the conditions of produc- 
tion itself, and this also determines its specific political shape. 
It is always the direct relation of the owners of the conditions 
of production to the direct producers, which reveals the in- 
nermost secret, the hidden foundation of the entire social 
construction, and with it of the political form of the relations 
between sovereignty and dependence, in short, of the corre- 
sponding form of the state. The form of this relation be- 
tween rulers and ruled naturally corresponds always with a 
definite stage in the development of the methods of labor and 
of its productive social power. This does not prevent the 
same economic basis from showing infinite variations and 
gradations in its appearance, even though its principal con- 
ditions are everywhere the same. This is due to innumerable 
outside circumstances, natural environment, race peculiari- 
ties, outside historical influences, and so forth, all of which 
must be ascertained by careful analysis. 

So much is evident in the case of labor rent, the simplest 
and most primitive form of rent: The rent is here the orig- 
inal form of surplus-value and coincides with it. Further- 
more, the identity of surplus-value with unpaid labor of oth- 
ers does not need to be demonstrated by any analysis in this 
case, because it still exists in its visible, palpable form, for 
the labor of the direct producer for himself is still separated 
by space and time from his labor for the landlord, and this 



920 Capitalist Production. 

last labor appears clearly in the brutal fomi of forced labor 
for another. In the same way the " quality " of the soil to 
produce a rent is here reduced to a tangibly open secret, for 
the nature which here furnishes the rent also includes the 
human labor-power bound to the soil, and the -property rela- 
tion which compels the owner of labor-power to exert this 
quality and to keep it busy beyond the measure required for 
the satisfaction of his own material needs. The rent con- 
sists directly in the appropriation, by the landlord, of this 
surplus expenditure of labor-power. For the direct producer 
pays no other rent. Here, where surplus-value and rent are 
not only identical, but where surplus-value obviously has the 
form of surplus labor, the natural conditions, or limits, of 
rent lie on the surface, because those of surplus-value do. 
The direct producer must, 1), possess enough labor-power, 
and 2), the natural conditions of his labor, which means in 
the first place the soil cultivated by him, must be productive 
enough, in one word, the natural productivity of his labor 
must be so great that the possibility of some surplus labor 
over and above that required for the satisfaction of his own 
needs shall remain. It is not this possibility which creates 
the rent. The rent is not created until compulsion makes 
a reality of this possibility. But the possibility itself is con- 
ditioned upon subjective and objective facts of nature. And 
there is nothing mysterious about it. If the labor-power is 
small, and the natural conditions of labor poor, then the sur- 
plus labor is small, but so are in that case the wants of the 
producers on one side and the relative numbers of the ex- 
ploiters of surplus labor on the other, and so is finally the 
surplus product, by which this little productive surplus labor 
is represented for those few exploiting land owners. 

Finally, labor rent implies in itself that, all other circum- 
stances remaining equal, it will depend wholly upon the rela- 
tive amount of surplus labor, or forced labor, to what extent 
the direct producer shall be enabled to improve his own con- 
dition, to acquire wealth, to produce a surplus over and above 
his indispensable means of subsistence, or, if we wish to an- 
ticipate the capitalist mode of expression, whether he shall be 



Labor Rent. 921 

able to produce a profit for himself, and how much of a profit, 
meaning a surplus over the wages produced by himself. The 
rent is here the normal, all absorbing, one might say legiti- 
mate, form of surplus labor. So far from being a surplus 
over the profit, which means in this case in excess of any 
other surplus over the wages, it is rather the amount of profit, 
and even its very existence, which depends, other circum- 
stances being equal, upon the amount of rent, or upon the 
forced surplus labor to be surrendered to the landlord. 

Some historians have expressed astonishment that it should 
be possible for the forced laborers, or serfs, to acquire any 
independent property, or relatively speaking, wealth, under 
such circumstances, since the direct producer is not an owner, 
but only a possessor, and since all his surplus labor belongs 
legally to the landlord. However, it is evident that tradition 
must play a very powerful role in the primitive and undevel- 
oped circumstances, upon which this relation in social pro- 
duction and the corresponding mode of production are based. 
It is furthermore clear that here as everywhere else it is in 
the interest of the ruling section of society to sanction the 
existing order as a law and to perpetuate its habitually and tra- 
ditionally fixed limits as legal ones. Aside from all other 
matters, this comes about of itself in proportion as the con- 
tinuous reproduction of the foundation of the existing order 
and of the relations corresponding to it gradually assume a 
regulated and orderly form. And such regulation and order 
are themselves indispensable elements of any mode of pro- 
duction, provided that it is to assume social firmness and an 
independence from mere accident and arbitrariness. It is 
just through them that society is rendered more firm and 
emancipated relatively from mere arbitrariness and mere ac- 
cident. Society assumes this form by the repeated reproduc- 
tion of the same mode of production, where the process of 
production stagnates and with it the corresponding social re- 
lations. If this continues for some time, this order fortifies 
itself by custom and tradition and is finally sanctioned as an 
expressed law. Since the form of this surplus labor, of 
forced labor, rests upon the imperfect development of all pro- 



922 Capitalist Production. 

ductive powers of society, and upon the crudeness of the meth- 
ods of labor itself, it will naturally absorb a much smaller 
portion, relatively, of the total labor of the direct producers 
than under developed modes of production, particularly un- 
der the capitalist mode of production. Take it, for instance, 
that the forced labor for the landlord originally amounted to 
two days per week. These two days of forced labor are fixed, 
are a constant magnitude, legally regulated by laws of usage 
or written laws. But the productivity of the remaining days 
of the week, over which the direct producer has independent 
control, is a variable magnitude, which must develop in the 
course of his experience, together with the new wants he ac- 
quires, together with the expansion of the market for his prod- 
uct, together with the increasing security which guarantees 
independence for this portion of his labor-power. These 
things will spur him on to a greater exertion of his labor- 
power, and it must not be forgotten that the employment of 
his labor-power is by no means confined to agriculture, but 
includes rural house industry. The possibility of a certain 
economic development, depending, of course, upon the favor 
of circumstances, upon inborn race characteristics, etc., is 
open in this case. 



III. Rent in Kind. 

The transformation of labor rent into rent in kind does 
not change anything in the nature of rent, economically speak- 
ing. This nature, in the forms of rent considered here, is 
such that rent is the sole prevailing and normal form of sur- 
plus labor, or surplus-value. This, again, expresses the fact 
that rent is the only surplus labor, or the only surplus product 
which the direct producer, being in possession of the labor 
conditions needed for his own reproduction, must give up to 
the owner of the land, which under this state of things is the 
one condition of labor embracing everything. And further- 
more it expresses the fact that land is the only labor condi- 
tion, which stands opposed to the direct producer as a prop- 
erty independent of him and held in the hands of another, 



Rent in Kind. 923 

being personified by the landlord. To the extent that rent 
in kind is the prevailing and dominant form of ground-rent, 
it is always more or less in the company of survivals of the 
preceding form, that is of rent paid directly by labor, forced 
labor, no matter whether the landlord be a private person or 
the state. Rent in kind requires a higher state of civiliza- 
tion for the direct producer, a higher stage of development 
of his labor and of society in general. And it is distinguished 
from the preceding form by the fact that the surplus labor is 
no longer performed naturally, is no longer performed under 
the direct supervision and compulsion of the landlord or of 
his representatives. The direct producer is rather driven 
by the force of circumstances than by direct coercion, rather 
by legal enactment than by the whip, to perform surplus la- 
bor on his own responsibility. Surplus production, in the 
sense of a production beyond the indispensable needs of the 
direct producer, and within the field of production actually 
in his own possession, upon the soil exploited by himself and 
no longer upon the lord's estate outside of his own land, has 
become a matter of fact rule here. In this relation the di- 
rect producer is more or less master of the employment of his 
whole labor time, although a part of this labor time, at first 
practically the entire surplus portion of it, belongs to the land- 
lord without any compensation. Only, the landlord does not 
get this surplus labor any more in its natural form, but rather 
in the natural form of the product in which it is realized. 
The burdensome interruption by the labor for the landlord 
(see Volume I, chapter X, 2, Manufacturer and Boyard), 
which disturbs the reproduction of the serf more or less, ac- 
cording to the way in which forced labor is regnilated, disap- 
pears, wherever rent in kind has its pure form, or at least 
it is reduced to a few short intervals during the year, which 
demand a continuation of rent by forced labor by the side- 
of rent in kind. The labor of the producer for himself and 
his labor for the landlord are no longer palpably separated 
by time and space. This rent in kind, in its pure form, while 
it may drag itself along sporadically into more highly devel- 
oped modes of produ^tior and -conditions of production, nev- 



924 Capitalist Production. 

ertheless requires for its existence a natural economy, that is 
an economy in which the conditions of production are either 
wholly or for the overwhelming part produced by the system 
itself in such a way that they are reproduced directly out of 
its gross product. It furthermore requires the combination 
of domestic rural industry with agriculture. The surplus 
product, which forms the rent, is the product of this combined 
agricultural and industrial family labor, no matter whether 
rent in kind contains more or less of the industrial product, 
as it often does in the middle ages, or whether it is paid only 
in the form of actual products of the soil. In this form of 
rent it is by no means necessary that rent in kind, which rep- 
resents the surplus labor, should fully exhaust the entire sur- 
plus labor of the rural family. Compared to labor rent, the 
producer rather has more elbow room to gain time for some 
surplus labor whose product shall belong to himself, as does 
that of the labor which produces his indispensable means of 
subsistence. This form will also give rise to greater differ- 
ences in the economic situation of the individual direct pro- 
ducers. At least the possibility for such a differentiation ex- 
ists, and so does the possibility that the direct producer may 
have acquired the means to exploit other laborers for himself, 
but this does not concern us here, since we are dealing with 
rent in its pure form. ISTeither can be pay any heed to the 
endless variety of combinations, by which the various forms of 
rent may be united, adulterated and amalgamated. 

Owing to the peculiar form of rent in kind, by which it is 
bound to a definite kind of products and of production, owing 
furthermore to the indispensable combination of agriculture 
and domestic industry attached to it, also to the almost com- 
plete selfsufficiency in which the peasant family supports it- 
self and to its independence from markets and from the move- 
ment of production and history in the social spheres outside 
of it, in short owing to the character of natural economy in 
general this form is quite suitable for becoming the basis of . 
stationary conditions of society, such as we see in Asia. Here, 
as previously in the form of labor rent, gi'ound-rent is the 
normal form of surplus-value, and thus of surplus labor, that 



Rent in Kind. 925 

is of the entire surplus labor performed without any equiva- 
lent by the direct producer for the benefit of the owner of his 
essential means of production, the land, a labor which is still 
performed under compulsion, although no longer in the old 
brutal form. The profit, if, falsely anticipating, we may so 
call that portion of the direct producer's labor which exceeds 
his necessary labor and which he keeps for himself, has so 
little to do with determining the rent in kind, that this profit 
rather grows up behind the back of the rent and finds its 
natural limit in the size of the rent in kind. This rent may 
assume dimensions which seriously threaten the reproduc- 
tion of the conditions of labor, of the means of production. 
It may render an expansion of production more or less im- 
possible, and grind the direct producers down to the physical 
minimum of means of subsistence. This is particularly the 
case, when this form is met and exploited by a conquering 
industrial nation, as India is by the English. 



lY. Money Rent. 



By money rent we mean here — for the sake of dis- 
tinction from the industrial and commercial ground-rent 
resting upon the capitalist mode of production, which is but 
a surplus over the average profit — that ground-rent which 
arises from a mere change of form of rent in kind, just as 
this rent in kind, in its turn, is but a modification of labor 
rent. Under money rent, the direct producer no longer turns 
over the product, but its price, to the landlord (who may be 
either the state or a private individual). A surplus of prod- 
ucts in their natural form is no longer sufiicient; it must be 
converted from its natural form into money. Although the 
direct producer still continues to produce at least the greater, 
part of his means of subsistence himself, a certain portion of 
this product must now be converted into commodities, must 
be produced as commodities. The character of the entire 
mode of production is thus more or less changed. It loses its 
independence, it remains no longer detached from the social 



926 Capitalist Production. 

connections. The proportion of the cost of production, which 
now is more and more complicated with the expenditure of 
money, now becomes a determining factor. At any rate, 
the excess of that portion of the gross product, which must 
be converted into money, over that portion, which has to serve 
either as means of reproduction or as means of direct subsist- 
ence, assumes a determining role. However, the basis of this 
rent remains the same as that of the rent in kind, from which 
it starts, although money rent likewise approaches its disso- 
lution. The direct producer still is the possessor of the land, 
either by inheritance or by some other traditional right, and 
he has to perform for his landlord, who is the owner of the 
land, of his most essential instrument of production, forced 
surplus labor, that is, unpaid labor for which no equivalent 
is returned, and this forced surplus labor is now paid in 
money obtained by the sale of the surplus product. The 
property in requirements of labor separate from the land, 
such as agricultural implements and other movable things, is 
transformed into the property of the direct producer even un- 
der the preceding form of rent, first in fact, then legally, and 
this is the condition even more under money rent. The 
transformation of rent in kind into money rent, taking place 
first sporadically, then on a more or less national scale, re- 
quires a considerable development of commerce, of city in- 
dustries, of the production of commodities in general, and 
with them of the circulation of money. It furthermore re- 
quires that products should have a market price, and that 
they are sold more or less approximately at their values, 
which need not necessarily be the case under the preceding 
forms. In the East of Europe we may still see in a certain 
measure this transformation with our own eyes. How little 
it can be carried through without a certain development of 
the social productivity of labor, is proved by various unsuc- 
cessful attempts to carry it through under the Roman em- 
perors, and by relapses into rent in kind after the attempt 
had been made to convert at least that portion of rent in kind 
into a money rent which had to be paid as a state tax. The 
same difficulties of transition are shown, for instance, by the 



Money Rent. 927 

prerevolutionary time in France, when money rent was com- 
bined and adulterated by survivals of the forms preceding it. 

Money rent, as a converted form of rent in kind and as an 
antagonist of rent in kind, is the last form, and the dissolv- 
ing form, of that form of ground-rent, which we have consid- 
ered so far, namely of ground-rent as the normal form of 
surplus-value and of the unpaid surplus labor to be performed 
for the owner of the means of production. In its pure form, 
this rent, like labor rent and rent in kind, does not represent 
any surplus above the profit. It absorbs the profit, as it is 
understood. To the extent that profit arises in fact as a 
separate portion of the surplus labor by the side of the rent, 
money rent as well as rent in its preceding forms still is the 
normal barrier of such embryonic profit, which can only de- 
velop in proportion as the possibility of exploitation grows, 
whether it be the producer's own surplus labor or the surplus 
labor of another, which remains after the surplus represented 
by money rent has been paid. If any profit actually arises 
along with this rent, this profit is not a barrier of rent, but 
the rent is rather a barrier of this profit. However, we re- 
peat that money rent is at the same time the disappearing 
form of the rent which we have considered so far, of that 
rent which is identical with surplus-value and surplus labor, of 
ground-rent as the normal and prevailing form of surplus- 
value. 

In its further development money rent must lead — aside 
from all intermediate forms, such as that of the small 
peasant who is a tenant — ' either to the transformation of 
land into independent peasants' property, or into the form 
corresponding to the capitalist mode of production, that is, 
to rent paid by the capitalist tenant. 

With the coming of money rent the traditional and cus- 
tomary relation between the landlord and the subject tillers 
of the soil, who possess and cultivate a part of the land, is 
turned into a pure money relation fixed by the rules of posi- 
tive law. The cultivating possessor thus becomes virtually 
a mere tenant. This transformation serves on the one hand, 
provided that other general conditions of production permit 



928 Capitalist Production. 

such a thing, to expropriate gradually the old peasant pos- 
sessors and to put in their place capitalist tenants. On the 
other hand it leads to a release of the old possessors from 
their tributary relation by buying themselves free from their 
landlord, so that they become independent farmers and free 
owners of the land tilled by them. The transformation of 
rent in kind into money rent is not only necessarily accompa- 
nied, but even anticipated by the formation of a class of prop- 
ertyless day laborers, v^ho hire themselves out for wages. 
During the period of their rise, when this new class appears 
but sporadically, the custom necessarily develops among the 
better situated tributary farmers of exploiting agricultural 
laborers for their own account, just as the wealthier serfs in 
feudal times used to employ serfs for their own benefit. In 
this way they gradually acquire the ability to accumulate a 
certain amount of wealth and to transform themselves even 
into future capitalists. The old selfemploying possessors of 
the land thus give rise among themselves to a nursery for cap- 
italist tenants, whose development is conditioned upon the 
general development of capitalist production outside of the 
rural districts. This class grows very rapidly, when partic- 
ularly favorable circumstances come to its aid, as they did in 
England in the 16th century, where the progressive depreci- 
ation of money made them rich, under the customary long 
leases, at the expense of the landlords. 

Furthermore : As soon as rent assumes the form of money 
rent, and with it the relation between rent paying peasants 
and landlords becomes a relation fixed by contract — 
a development which is not possible unless the world mar- 
ket, commerce and manufacture have reached a relatively 
high level — the leasing of land to capitalists necessa- 
rily also puts in its appearance. These men, having stood 
outside of the rural barrier so far, now transfer to the coun- 
try and to agriculture some capital acquired in the cities and 
with it the capitalist mode of production as developed in those 
cities, which implies the creation of the product in the form 
of a mere commodity and as a mere means of appropriating 
surplus-value. This form can become the general rule only 



Money Rent. 929 

in those eoimtries, which dominate the world market in the 
period of transition from the feudal to the capitalist mode of 
production. When the capitalist tenant steps between the 
landlord and the actually working tiller of the soil, all condi- 
tions have been dissolved, which arose from the old rural 
mode of production. The capitalist tenant becomes the. ac- 
tual commander of these agricultural laborers and the actual 
exploiter of their surplus labor, whereas the landlord has any 
direct relations only with this capitalist tenant, the relation 
being a mere money relation fixed by contract. This trans- 
forms also the nature of the rent, not merely in fact and acci- 
dentally, as it did sometimes even under the preceding forms, 
but normally, by transforming its acknowledged and prevail- 
ing mode. Instead of continuing as the normal form of sur- ( 
plus-value and surplus labor, it becomes a mere surplus of f 
this surplus labor over that portion of it, which is appropri- ; 
ated by the exploiting capitalist in the form of profit. And 
now the total surplus labor, both profit and surplus above the 
profit, are extracted by him directly, appropriated in the form 
of the surplus product, and turned into money. It is only 
the surplus portion of the surplus-value extracted by him from 
the agricultural laborer by direct exploitation, by means of 
his capital, which he turns over to the landlord as rent. How 
much or how little he gives away to him depends, as a rule, 
upon the limits set by the average profit which is realized by 
the capital in the non-agricultural spheres of production, and 
by the non-agricultural prices of production regulated by this 
average profit. From a normal form of surplus-value and 
surplus labor the rent has now transformed itself into a sur- 
plus peculiar to the agricultural sphere of production, ex- 
ceeding that portion of the surplus labor, which is claimed 
at first hand by capital as its legitimate and normal share. 
Profit, instead of rent, has now become the normal form of 
surplus-value, and rent exists only as a form, not of surplus- 
value in general, but of one of its offshoots, called surplus 
profit, which assumes an independent existence only under 
very peculiar circumstances. It is not necessary to dwell any 
further upon the way in which this transformation is accom- 

3G 



930 Capitalist Production. 

jDanied by a gradual transformation of tlie mode of produc- 
tion itself. This is shown by the mere fact that it is the 
normal thing for the capitalist tenant to produce the prod- 
ucts of the soil as commodities, and that, while formerly only 
the surplus over his means of subsistence was converted into 
commodities, now but a relatively small part of these com- 
modities is directly used as means of subsistence for him. It 
is no longer the land, but the capital, which has now brought 
under its direct sway and imder its own productivity the la- 
bor of the agriculturalist. 

The average profit and the price of production regulated by 
it are formed outside of the conditions of the rural country 
within the circles of city commerce and manufacture. The 
profit of the rent-paying farmers does not enter into it as a 
balancing element, for their relation to the landlord is not 
a capitalist one. To the extent that he makes profits, that is, 
realizes a surplus above his necessary means of subsistence, 
either by his own labor or by the exploitation of other peo- 
ple's labor, it is done behind the back of the normal relation- 
ship. Other circumstances being equal, the size of this profit 
does not determine the rent, but on the contrary, it is deter- 
mined by the limits set by the rent. The high rate of profit 
in the Middle Ages is not entirely due to the low composition 
of the capital, in which the variable capital, invested in 
wages, predominates. It is due also to the robbery commit- 
ted against the land, the appropriation of a portion of the 
landlord's rent and of the income of his vassals. While the 
country exploits the town politically in the Middle Ages, 
wherever feudalism has not been broken diown by an excep- 
tional development of the towns, the town, on the other hand, 
everywhere and without exception exploits the land economic- 
ally by its monopoly prices, its system of taxation, its guild 
organizations, its direct mercantile fraud and its usury. 

One might imagine that the mere advent of the capitalist 
tenant in agricultural production would prove that the price 
of those products of the soil, which had always paid a rent in 
one form or another, must stand above the prices of produc- 
tion of manufacture, at least at the time of this advent. And 



Money Rent. 931 

this for the reason that the price of such -products of the soil 
had reached the level of a monopoly price or that it had 
risen as high as the value of the products of the soil, and that 
this value actually stood above the price of production regu- 
lated by the average profit. Unless this were so, the capi- 
talist tenant could not very well realize first the average profit 
out of the price of these products, at the existing prices of 
the products of the soil, and then pay out of this same price 
a surplus above his profit in the form of rent. One might 
conclude from this that the average rate of profit, which 
guides the capitalist tenant in his contract with the landlord, 
had been formed without including the rent, and that as soon 
as this average rate of profit assumes a regulating part in 
agricultural production it finds this surplus ready at hand 
and turns it over to the landlord. It is in this traditional 
manner that, for instance, Rodbertus explains this matter. 
But several points must be considered here. 

1) This advent of capital as an independent and leading 
power in agriculture does not take place generally all at once, 
but gradually and separately in various lines of production. 
It seizes at first, not agriculture proper, but such lines of pro- 
duction as cattle raising, especially sheep raising, whose prin- 
cipal product, wool, offers a steady surplus of the market 
price over the price of production during the rise of indus- 
try, and this is not balanced until later. This was the case 
in England during the 16th century. 

2) Since this capitalist production appears at first but 
sporadically, nothing can be argued against the assumption, 
that it takes hold in the beginning only of such groups of land 
as are able, through their particular fertility, or their excep- 
tionally favorable location, to pay a differential rent in the 
long run. 

3) Even assuming that at the time of the advent of this 
mode of production, which indeed requires an increasing pre- 
ponderance of the demand in the towns, the prices of the 
products of the soil stood higher than the price of produc- 
tion, as was doubtless the case during the last third of the 
17th century in England, nevertheless, as soon as this mode 



932 Capitalist Production. 

of production will have worked its way somewhat out of the 
mere suhordination of agriculture to capital, and as soon as 
the improvement of agriculture and the reduction of its cost 
of production, which accompany its development, will have 
taken place, the balance will be restored by a reaction, a fall 
in the price of the products of the soil, as happened in the 
first half of the 18th century in England. 

In this traditional way, then, rent as a surplus above the 
average profit cannot be explained. Whatever may be the 
historical circumstances of the time in which rent appears 
at first, once that it has taken root it cannot exist under any 
other modern conditions than those previously explained. 

Finally, it should be noted in the transformation of rent 
in kind into money rent, that with it capitalized rent, or the 
price of land, and its salableness and sale become essential 
elements, and that with them not only the formerly rent-pay- 
ing tenant may be transformed into an independent peasant 
proprietor, but also urban and other moneyed people may buy 
real estate, in order to lease them either to peasants or to cap- 
italists and thus to enjoy rent in the form of interest on cap- 
ital so invested ; that, therefore, this likewise assists in the 
transformation of the former mode of exploitation, of the re- 
lation between the ovTner and the actual tiller of the land, and 
of the rent itself. 



V. Share Farming (Metairie System) and Small Peasants' 

Propei'ty. 

We have now arrived at the end of our line of development 
of ground-rent. 

In all these forms of ground-rent, whether labor rent, rent 
in kind, or money rent (as a mere change of lorm of rent in 
kind), the rent-paying party is always supposed to be the ac- 
tual tiller and possessor of the land, whose unpaid surplus la- 
bor passes directly into the hands of the landlord. Even in 
the last form, money rent — to the extent that it is " pure," 
in other words, a mere change of form of rent in kind — this 
is not only possible, but actually takes place. 



Share Farming. 933 

As a form of transition from the original form of rent to 
capitalist rent, we may consider the metairie system, or share 
farming, under which the manager (tenant) furnishes not 
only labor (his own or that of others), but also a portion of 
the first capital, and the landlord furnishes, aside from the 
land, another portion of the first capital (for instance cattle), 
and the product is divided between the tenant and the land- 
lord according to definite shares, which differ in various coun- 
tries. In this case, the tenant lacks the capital required for 
a thorough capitalist operation of agriculture. On the other 
hand, the share thus appropriated by the landlord has not 
the pure form of rent. It may actually include interest on 
the capital advanced by him and a surplus rent. It may also 
absorb practically all the surplus labor of the tenant, or leave 
to him a g-reater or smaller portion of this surplus labor. 
But the essential point is that rent no longer appears here as 
the normal form of surplus-value in general. On the one 
hand, the tenant, whether he employ his own labor or anoth- 
er's, is supposed to have a claim upon a portion of the prod- 
uct, not in his capacity as a laborer, but as a possessor of a 
part of the instruments of labor, as his own capitalist. On 
the other hand, the landlord claims his share not exclusively 
in his capacity as the owner of the land, but also as a lender 
of capital.^^^ 

A remainder of the old community in land, which had 
been preserved after the transition to independent peasant 
economy, for instance in Poland and Roumania, served there 
as a subterfuge for accomplishing a transition to the lower 
forms of ground-rent. A portion of the land belongs to the 
individual farmers and is tilled independently by them. An- 
other portion is tilled collectively and creates a surplus prod- 
uct, which serves either for the payment of community ex- 
penses, or as a reserve in case of crop failures, etc. These 
last two parts of the surplus product, and finally the whole 
surplus product together with the land, upon which it has 
been grown, are gradually usurped by state officials and pri- 
vate individuals, and by this means the originally free peas- 

1^ Compare Buret, Tocqueville, Sismondi, 



934 Capitalist Production. 

ant proprietors, whose obligation to till this land collectively 
is maintained, are transformed into vassals, who are compelled 
to perform forced labor or pay rent in kind, while the usurp- 
ers are transformed into owners, not only of the stolen com- 
munity lands, but of the lands of the peasants themselves. 

We need not dwell upon actual slave economy (which like- 
wise passes through a development from the patriarchal sys- 
tem, working pre-eminently for home use, to the plantation 
system, working for the world market) nor upon that man- 
agement of estates, under which the landlords carry on agri- 
culture for their ovtm account, ovstq all the instruments of 
production, and exploit the labor of free or unfree servants, 
who are paid in kind or in money. In this case, the land- 
lord and the owner of the instruments of production, and 
thus the direct exploiter of the laborers counted among these 
instruments of production, are one and the same person. 
Rent and profit likewise coincide then, there being no sepa- 
ration of the different forms of surplus-value. The entire 
surplus labor of the workers, which is here represented by 
the surplus product, is extracted from them directly by the 
owner of all the instruments of production, to which the land 
and, under the original form of slavery, the producers them- 
selves, belong. Where capitalist conceptions predominate, as 
they did upon the American plantations, this entire surplus- 
value is regarded as profit. In places where the capitalist 
mode of production does not exist, nor the concej)tions cor- 
responding to it have been transferred from capitalist coun- 
tries, it appears as rent. At any rate, this form does not 
present any difficulties. The income of the landlord, what- 
ever may be the name given to it, the available surplus prod- 
uct appropriated by him, is here the normal and predomi- 
nating form, under which the entire unpaid labor is directly 
appropriated, and the property in land forms the basis of this 
appropriation. 

There is, furthermore, the small peasants' property. Here 
the farmer is the free owner of his land, which appears as 
his principal instrument of production, the indispensable field 
of employment for his labor and his capital, l^o lease money 



Small Peasants' Property. 935 

is paid uiider this form. Rent, therefore, does not appear as 
a separate form of surplus-value here, although in countries, 
in which capitalist industry in other lines is developed, it 
appears as a surplus profit by comparison with other lines of 
production. But it is a surplus profit which, like all the rest 
of the product of his labor, falls into the hands of the farmer 
himself. 

This form of property in land requires that, as was the 
case under the earlier forms, the rural population should 
have a great preponderance over the city population, so that, 
while capitalist production may generally prevail, it is nev- 
ertheless but relatively little developed, concentration of cap- 
itals moves in narrow circles in the other lines of production, 
and dissipation of capitals predominates. Under these con- 
ditions, the greater part of the rural product will have to be 
consumed, as a direct means of subsistence, by the producers, 
the farmers themselves, and only the surplus above that will 
pass as commodities into the commerce with the cities. What- 
ever may be the manner, in which the average market price 
of the products of the soil is regulated in this case, the differ- 
ential rent, a surplus portion of the price of commodities 
from the superior or more favorably located lands, must evi- 
dently exist in this case just as it does under the capitalist 
mode of production. This differential rent would exist, even 
if this form should appear under social conditions, in which 
no general market price has as yet been developed. It ap- 
pears then in the spare surplus product. Only it flows into 
the pocket of the farmer, whose labor realises itself under fa- 
vorable natural conditions. It is precisely under this form 
that the assumption is correct, as a rule, that no absolute rent 
exists, so that the worst soil does not pay any rent. For un- 
der this form the price of land enters as an element into the 
actual cost of production for the farmer, since in the course 
of the further development of this form the price of land may 
have been figured, for instance in the case of a division of 
an estate, at a certain money value, or, in view of the con- 
tinuous change in the ownership of the whole property, or of 
its parts, the land may have been bought by the tiller him- 



936 Capitalist Production. 

self, largely by taking up money on a mortgage. In this way 
the price of land, which is nothing else but a capitalized rent, 
is a pre-existing condition and rent seems to exist independ- 
ently of any differentiation in the fertility and location of 
the land. Absolute rent is conditioned either upon the real- 
ized surplus of the value of the product above its price of 
production, or a monopoly price exceeding the value of the 
product. But since agriculture is carried on here largely as 
an agriculture for direct subsistence, so that the land is an 
indispensable field of employment for the labor and capital of 
the majority of the population, the regulating market price 
of the product will come up to its value only under extraor- 
dinary circumstances. But its value will, as a rule, stand 
higher than its price of production on account of the predom- 
inance of the element of living labor, although this excess of 
its value over its price of production will be in its turn lim- 
ited by the low composition of the capital, even of that of the 
industries outside of agriculture, in countries with a predom- 
inance of small farmers' property. For the small farmer the 
limit of exploitation is not set by the average profit of the 
capital, if he is a small capitalist, nor by the necessity of 
making a rent, if he is a landowner. ISTothing appears as an 
absolute limit for him, as a small capitalist, but the wages 
which he pays to himself, after deducting his actual costs. 
So long as the price of the product covers these wages, he will 
cultivate his land, and will do so often down to the physical 
minimum of his wages. As for his capacity as a landlord, 
the barrier of property is eliminated in his case, since it can 
exert its influence only against a capital (including labor) 
separated from it, by erecting an obstacle against its invest- 
ment. It is true that interest on the price of land, which 
generally has to be paid to another, the holder of the mort- 
gage, also forms a barrier. But this interest can be paid 
out of that portion of the surplus labor, which would form 
the profit under capitalist conditions. The rent anticipated 
in the price of land, and in the interest paid for it, cannot 
be anything else but -a portion of the capitalized surplus la- 



Small Peasants' Property. 937 

bor of the farmer, performed by him beyond the labor 
indispensable for his subsistence, without realising this surplus 
labor in a part of the value of commodities equal to the entire 
average profit, and still less in a surplus profit, which would 
constitute a surplus above the surplus labor realised in the 
average profit. The rent may be a deduction from the aver- 
age profit, or even the only portion of it which is realised. 
In order that the small farmer may cultivate his land, or may 
buy land for cultivation, it is therefore not necessary, as it is 
under a normal capitalist production, that the market price 
of his products should rise high enough to allow him the aver- 
age profit, and still less a surplus above this average profit 
fixed in the form of a rent. Therefore it is not necessary 
that the market price should rise, either as high as the value 
or as high as the price of production of his product. This 
is one of the causes which keeps the price of cereals lower- in 
countries with a predominance of small farmers than in coun- 
tries with a capitalist mode of production. One portion of 
the surplus labor of the farmers, who work under the least 
favorable conditions, is given to society without an equivalent 
and does not pass over into the regulation of the price of pro- 
duction or into the formation of values in general. . This 
lower price is also a result of the poverty of the producers 
and by no means of the productivity of their labor. 

This form of free farmers' property managing their own 
affairs, as the prevailing, normal, form constitutes on the one 
hand the economic foundation of society during the best times 
of classical antiquity, on the other hand it is found among 
modern nations as one of the forms arising from the dissolu- 
tion of feudal landlordism. In this way we meet the yeo- 
manry in England, the peasantry in Sweden, the farmers in 
France and Western Germ^any. We do not mention the col- 
onies here, since the independent farmer there develops un- 
der different conditions. 

The free ownership of the selfemploying farmer is evi- 
dently the most normal form of landed property for small 
scale production, th^t is, for a mode of production, in which 



938 Capitalist Production. 

the possession of the land is a prerequisite for the ownership 
of the product of his own labor bj the laborer, and in which 
tlie agriculturist, whether he be a free o^vner or a vassal, al- 
ways has to produce his own means of subsistence independ- 
ently, as a single laborer with his family. The ownership of 
the soil is as necessary for the complete development of this 
mode of production as the ownership of the instrument is 
for the free development of handicraft production. This 
ownership forms here the basis for the development of per- 
sonal independence. It is a necessary stage of transition for 
the development of agriculture itself. The causes which 
bring about its do-vviifall show its limitations. These causes 
are: Destruction of rural house industries, which form its 
normal supplement, as a result of the development of great in- 
dustries; a gradual deterioration and exhaustion of the soil 
subjected to this cultivation; usurpation, on the part of the 
great landlords, of the community lands, which form every- 
where the second supplement of small peasants' property and 
alone enable them to keep cattle ; competition, either of plan- 
tation systems or of great agricultural enterprises carried out 
on a capitalist scale. Improvements of agriculture, which 
on the one hand bring about a fall in the prices of the prod- 
ucts of the soil, and on the other require greater investments 
and more diversified material conditions of production, also 
contribute towards this end, as they did in England during 
the first half of the ISth century. 

Small peasants' property excludes by its very nature the 
development of the social powers of production of labor, the 
social forms of labor, the social concentration of capitals, cat- 
tle raising on a large scale, and a progressive application of 
science. 

Usury and a system of taxation must impoverish it every- 
where. The expenditure of capital in the price of the land 
withdraws this capital from cultivation. An infinite dissipa- 
tion of means of production and an isolation of the produc- 
ers themselves go with it. Also an enormous waste of hu- 
man energy, A progressive deterioration of the conditions 
of production and a raising of the price of means of produc- 



Small Peasants' Property. 939 

tion is a necessary law of small peasants' property. Fertile 
seasons are a misfortune for this mode of production. -^^^ 

One of the specific evils of small scale agriculture, when 
combined with the free ownership of the land, arises from the 
fact that the agriculturist invests a capital in the purchase 
of the land. (The same applies also to the form of transi- 
tion, in which the great landlord invests capital, first, for 
the purpose of buying land, and secondly, for the purpose of 
managing it as his own tenant). Owing to the changeable 
nature, which the land here assumes as a mere commodity, 
the changes of ownership increase,^"*^ so that the land, from 
the point of view of the farmer, passes again into the calcu- 
lation as a new investment of capital with every new genera- 
tion, every division of estates, in other words, that it becomes 
land bought by him. The price of land here forms an over- 
whelming element of the individual false cost of production, 
or of the cost price of the product for the individual pro- 
ducer. 

The price of land is nothing but the capitalized, and there- 
fore anticipated, rent. If agriculture is carried on by cap^ 
italist methods, so that the landlord receives only the rent, and 
the tenant pays nothing for the land except his annual rent, 
then it is evident that the capital invested by the o\^Tier of 
the land himself in the purchase of the land constitutes an 
interest-bearing investm-ent of capital for him, but that it has 
nothing to do with the capital invested in agriculture itself. 
It forms neither a part of the fixed nor of the circulating cap- 
ital employed here;^^^ it merely secures for the buyer a titlo 
to the annual rent, but has nothing to do with the production 

1*" See the speech of the king of France in Tooke. 

^*^ See Mounier and Rubichon. 

^*^ Dr. H. Maron {Extensive or Intensive?) [No further information given about 
this pamphlet]. He starts from the false assumption of those whom he combats. 
He assumes that the capital invested in the purchase of land is " first capital," 
and engages in a controversy about first capital and running capital that is, fixed 
and circulating capital. His wholly amateurish conceptions of capital, which may 
be excused in one who is not an economist in view of the condition of German 
political economy, conceal from him the fact that this capital is neither first nor 
running capital, any more than the capital, which some one may invest at the 
Stock Exchange in the purchase of consols or state bonds, and which represents 
a personal investment of capital for him, is " invested " in any productive line of 
industry. 



940 Capitalist Production. 

of the rent itself. For the buyer of land pays his capital out 
to the one wlio sells the land, and the seller relinquishes his 
ownership of the land for this consideration. This capital 
does not exist any more as the capital of the buyer after that. 
He bas not got it any longer. Therefore it does not belong 
to the capital, whicb he can invest in any way in tbe land it- 
self. Whether he bought the land at a high or a low price, 
or whether he received it for nothing, does not alter anything 
in the capital invested by the tenant in his establishment, and 
does not make any change in the rent, but merely changes 
the question, whether it appears to him as interest or not as 
interest, or as a high or a low interest. 

Take, for instance, the slavery system. The price paid for 
a slave is nothing but the anticipated and capitalized surplus- 
value or profit, which is to be ground out of him. But the 
capital paid for the purchase of a slave does not belong to 
the capital, by which profit, surplus labor, is extracted from 
him. On the contrary. It is capital, which the slave holder 
gives away, it is a deduction from the capital, which he has 
available for actual production. It has ceased to exist for 
him, just as the capital invested in the purchase of land has 
ceased to exist for agTiculture. The best proof of this is the 
fact, that it does not come back into existence for the slave 
holder or the land owner, until he sells the slave or the land 
once more. Then the same condition of things holds good for 
the buyer. The fact that he has bought the slave does not 
enable him to exploit the slave without further ceremony. 
He is not able to do so until he invests some other capital in 
production by means of the slave. 

The same capital does not exist twice. It does not exist 
one time in the hands of the seller, and a second time in the 
hands of the buyer of the land. It passes from the hands of 
the buyer to those of the seller, and that settles the matter. 
The buyer has then no longer any capital, but in its stead he 
has a piece of land. The fact that the rent produced by a 
real investment of capital in this land is figured by the new 
owner of the land as interest on a capital, which he did not in- 
vest in the soil, but gave away as a purchase price for the 



Small Peasants' Property. 941 

land, does not alter the economic nature of the factor land 
in the least, any more than the fact that some one may have 
paid 1,000 pounds sterling for d% consols has anything to do 
with the capital, out of whose revenue the interest on the na- 
tional debt is paid. 

In fact, the money expended in the purchase of land, like 
that spent for the purchase of national bonds, is merely cap- 
ital in itself, just as any amount of values is capital in itself 
on the basis of capitalist production. It is potential capital.. 
The thing paid for the land, like that paid for national bonds 
or any other purchased commodity, is a sum of money. This is 
capital in itself, because it may be converted into capital. It 
depends upon the use to which the seller puts it, whether the 
money obtained by him really becomes capital or not. For 
the buyer it can never again perform the functions of capital, 
any more than any other money which he has finally spent. 
It figures in his calculations as interest-bearing capital, be- 
cause he considers the income, which he receives as rent from 
his land or as interest on his bonds, as interest on the money, 
which he paid for his title to this revenue. He cannot realise 
it as capital unless he sells his title again. If he does, then 
the new buyer assumes the same relationship in which the 
old one was, and the money spent in this transaction cannot 
transform itself into actual capital by any change of hands. 

In the case of small property in land the illusion, that the 
land itself has value and may, therefore, pass as a capital into 
the price of production of the product, like a machine or raw 
materials, fortifies itself still more. But we have seen that 
the rent, and with it capitalised rent, or the price of land, can 
pass over into the price of the products of the soil in two 
cases only. The first case is that, in which the value of the 
products of the soil stands higher than their price of produc- 
tion and the market conditions enable the landlord to realise 
this difference ; this condition of values and prices of produc- 
tion obtains, when the composition of the agricultural capital 
raises the value above the price of production. This agricul- 
tural capital has nothing to do with the capital invested in 
the purchase of the land. The second case is that in which 



0^2 Capitalist Production. 

a monopoly price exists. And both cases occur less under 
small peasants' property and small land ownership than un- 
der any other form, because production largely satisfies the 
producers' own wants in their case and is carried on inde- 
pendently of the regulation by the average rate of profit. 
Even where small peasants' economy is carried on upon leased 
land, the lease money comprises more than under any other 
conditions a portion of the profit and even a deduction from 
the wages; this money is then only a nominal rent, not a rent 
representing an independent category as compared to wages 
and profit. 

The expenditure of money-capital for the purchase of land, 
then, is not an investment of agricultural capital. It is a 
proportionate deduction from the capital, which the small 
farmers can employ in their own sphere of production. It 
reduces to that extent the size of their means of production 
and thereby narrows the economic basis of their reproduction. 
It subjects the small farmer to the money lender's extortion, 
since credit, in the strict meaning of the term, occurs but 
rarely in this sphere. It is an obstacle to agriculture, even 
where such a purchase takes place in the case of large estates. 
In fact, it contradicts the capitalist mode of production, which 
is on the whole indifferent to the question whether the land- 
owner is in debt, no matter whether he inherited or bought 
his estate. The management of tlie leased estate itself is not 
altered in its nature, whether the landowner pockets the rent 
himself or whether he has to pay it over to the holder of his 
mortgage. 

We have seen that the price of land is regulated by the rate 
of interest, if the ground-rent is a given magnitude. If the 
rate of interest is low, then the price of land is high, and 
vice versa. ISTormally, then, a high price of land and a low 
rate of interest would have to go hand in hand, so that if the 
farmer paid a high price for the land in consequence of a 
low rate of interest, the same low rate of interest should also 
secure for him his running capital on easy terms of credit. 
But in reality, things turn out differently under small peasants' 
property, as the prevailing form. In the first place, the 



Small Peasants' Property. 943 

general laws of credit do not apply to the farmer, since these 
laws rest upon tha capitalist as a producer. In the second 
place, where small peasants' property predominates — we are 
not s|)eaking of colonies here — and the small peasant forms 
the foundation of the nation, the formation of capital, that is 
social reproduction, is relatively weak, and the formation of 
loanable money-capital, in the sense in which we have 
previously analyzed this term, is still weaker. For this is 
conditioned upon concentration and the existence of a class 
of rich and idle capitalists (Massie). In the third place, 
where the ownership of the land is ' a necessary condition 
for the existence of the greater part of the producers, as it 
is here, and an indispensable field of investment for their 
capital, the price of land is raised independently of the rate 
of interest, and often in an inverse ratio to it, by the pre- 
ponderance of the demand for land over its supply. If sold 
in small lots, the land in this case brings a far higher price 
than it does by its sale in large estates, because the number 
of small buyers is large and that of the large buyers small 
(Bandes Noires, Buhichonj ISTewman). For all these rea- 
sons the price of land rises here while the rate of interest 
is relatively high. The relatively low interest, which the 
farmer here derives from the capital invested in the purchase 
of land (Mounier), corresponds on the other hand to the 
high rate of interest exacted by usury, which he himself has 
to pay to his mortgage creditors. The Irish system shows 
the same thing, only in another form. 

' This price of land, an element foreign in itself to produc- 
tion, may here rise to such a point that it makes production 
impossible (Dombasle). 

The fact that the price of land plays such a role, that the 
sale and purchase of land, the circulation of land as a com- 
modity, develops to this degree, is a practical result of capi- 
talist development, since a commodity is here the form gen- 
erally assumed by all products and all instruments of pro- 
duction. On the other hand, this development takes place 
only wherever capitalist production develops but to a limited 
extent and does not bring forth all its peculiarities. For 



944 Capitalist Production. 

this condition rests precisely upon the fact that agriculture 
is no longer, or not yet, subject to the capitalist mode of pro- 
duction, but rather to a mode handed down from obsolete 
forms of society. The disadvantages of the capitalist mode 
of production, which makes the producers dependent upon 
the money price of their products, coincide here with the dis- 
advantages due to the imperfect development of capitalist pro- 
duction. The farmer becomes a merchant and an industrial 
without the conditions which would enable him to produce 
his goods as commodities. 

The conflict between the price of land, as an element in 
the cost price of the producers, but not an element in the 
price of production of the product (even though the rent 
should pass as a determining element into the price of the 
products of the soil, the capitalized rent, which is advanced 
for 20 years or more, does not pass into their price in this 
way), is but one of the forms through which the antagonism 
between private ownership of the land and between a rational 
agriculture, a normal social utilization of the soil, expresses 
itself. But on the other hand, the private ownership of the 
land, and with it the expropriation of the direct producers 
from the land — the private property of some, which implies 
lack of private property on the part of others — is the basis 
of the capitalist mode of production. 

Here, in agriculture on a small scale, the price of the land 
a form and result of private ownership of the land, appears 
as a barrier of production itself. In agriculture on a large 
scale, and in the case of large estates resting upon a capi- 
talist mode of production, private ownership likewise acts 
as a barrier, because it limits the tenant in his investment 
of productive capital, which in the last analysis benefits, not 
him, but the landlord. In both forms the exploitation and 
devastation of the powers of the soil takes the place of a con- 
sciously rational treatment of the soil in its role of an eternal 
social property, of an indispensable condition of existence 
and reproduction for successive generations of human beings. 
And besides, this exploitation is made dependent, not upoii 
the attained degree of social development, but upon the ac- 



Small Peasants^ Property. 945 

cidental and unequal situations of individual producers. In 
the case of small property this happens from lack of means 
and science, by which the social productivity of labor-power 
might be utilized. In the case of large property, it is done 
by the exploitation of such means for the purpose of the most 
rapid accumulation of wealth for the tenant and proprietor. 
The dependence of both of them upon the market price is 
instrumental in accomplishing this result. 

All critique of small property resolves itself in the last 
resort into a critique of private ownership as a barrier and 
obstacle of agriculture. And so does all counter-critique of 
large property. In either case, we leave aside, of course, all 
minor considerations of politics. This barrier and this ob- 
stacle, which are set up by all private property of land against 
agricultural production and against a rational treatment, 
conservation and improvement of the soil itself, develop on 
both sides merely in different forms. In the controversy 
over these specific forms of the evil its ultimate cause is 
forgotten. 

Small property in land is conditioned upon the premise 
that the overwhelming majority of the population is rural, 
and that not the social, but the isolated labor predominates; 
that, therefore, in view of such conditions, the wealth and 
development of reproduction, both in its material and intel- 
lectual sides, are out of the question and with them the 
prerequisites of a rational culture. On the other hand, large 
landed property reduces the agricultural population to a 
continually decreasing minimum, and induces on the other 
side a continual increase of the industrial population crowded 
together in large cities. In this way it creates conditions, 
which cause an incurable break in the interconnections of 
the social circulation of matter prescribed by the natural 
laws of life. As a result the strength of the soil is wasted, 
and this prodigality is carried far beyond the boundaries of 
a certain country by commerce (Liebig). 

While small property in land creates a class of barbarians 
standing half way outside of society, a class suffering all the 
tortures and all miseries of civilized countries in addition to 

SH 



946 Capitalist Production. 

the enideness of primitive forms of society, large property 
in land undermines labor-power in the last region, in which 
its primal energy seeks refuge, and in it which stores up its 
strength as a reserve fund for the regeneration of the vital 
power of nations, the land itself. Large industry and large 
agriculture on an industrial scale work together. Originally 
distinguished by the fact, that large industry lays waste and 
destroys principally the labor-power, the natural power, of 
human beings, whereas large agriculture industrially man- 
aged destroys and wastes mainly the natural powers of the 
soil, both of them join hands in the further course of devel- 
opment, so that the industrial system weakens also the la- 
borers of the country districts, and industry and commerce 
supply agriculture with the means by which the soil may 
be exhausted. 



PAET VII. 

THE EEVENUES AND THEIK SOUECES. 



CHAPTER XLVIII. 

THE TRINITARIAN FORMULA. 
J 143 

Capital — Profit (Profit of Enterprise plus Interest), 
Land — ' Ground-Pent, Labor — Wages, this is the trini- 
tarian formula which comprises all the secrets of the social 
process of production. 

Furthermore, since interest, as previously demonstrated, 
appear as the characteristic product of capital, and profit of 
enterprise distinguishes itself from interest hj appearing as 
wages independent of capital, the above trinitarian formula 
reduces itself more specifically to the following : Capital — 
Interest, Land — Ground-Kent, Labor — Wages. Here 
profit, the specific mark characterizing the form of surplus- 
value belonging to the capitalist mode of production, is hap- 
pily eliminated. 

ISTow, if we look more closely at this economic trinity, we 
observe : 

1) The alleged sources of the annually available wealth 
belong to widely dissimilar spheres and have not the least 
analogy with one another. They have about the same re- 
lation to each other as lawyer's fees, carrots, and music. 

Capital, Land, Labor! But capital is not a thing. It is a 

^**The following three fragments were found in different places of the manu- 
script for Part VI. — F. E. 

947 



948 Capitalist Production. 

definite interrelation in social production belonging to a defi- 
nite historical formation of society. This interrelation ex- 
presses itself through a certain thing and gives to this thing 
a specific social character. Capital is not the sum of the 
material and produced means of production. Capital means 
rather the means of production converted' into capital, and 
means of production by themselves are no more capital than 
gold or silver are money in themselves. Capital signifies 
the means of production monopolized by a certain part of 
society, the products and material requirements of labor 
made independent of labor-power in living human beings and 
antagonistic to them, and personified in capital by this an- 
tagonism. Capital means not merely the products of the 
laborers made independent of them and turned into social 
powers, the products turned into rulers and buyers of their 
own producers, but also the social powers and the future 
. . . (illegible) form of labor, which antagonize the 
producers in the shape of qualities of their products. Here, 
then, we have a definite and, at first sight, very mystical, 
social form of one of the factors in a historically produced 
process of social production. 

By the side of this factor we have the land, the unorganic 
nature as such, a crude and uncouth mass, in its whole primal 
wildness. Value is labor. Therefore surplus-value cannot 
be land. The absolute fertility of the soil accomplishes no 
more than that a certain quantity of labor produces a certain 
product conditioned upon the natural fertility of the soil. 
The difference in the fertility of the soil brings it about that 
the same quantities of labor and capital, hence the same 
value, express themselves in different quantities of agricul- 
tural products, so that these products have different individ- 
ual values.^ The equalization of these individual values into 
market-values is responsible for the fact that the " advantages 
of fertile over inferior soil ... are transfen-ed from 
the cultivator or consumer to the landlord." (Kicardo, 
Principles, p. 6.) 

And finally, the third party in this conspiracy is a mere 
ghost, " Labor," a mere abstraction, and which does not exist 



The Trinitarian Formula. 949 

when taken by itself, or, if we take . . . (illegible), 
the productive activity of human beings in general, by which 
they promote the circulation of matter between themselves 
and nature, divested not only of every definiteness of social 
form and character, but even of its mere natural existence, 
independent of society, lifted above all societies, being the 
common attribute of unsocial man as well as of man with 
any form of society and a general expression and assertion 
of life. 



II. 

Capital — Interest ; Private Land, Private Ownership of 
the Earth, in modern form and corresponding to the capi- 
talist mode of production — Rent ; Wage Labor — Wages. 
This is supposed to be the connection between the sources of 
revenue. Wage Labor and Private Land, like Capital, are 
historically determined social forms; one a social form of 
labor, the other a social form of the monopolized terrestrial 
globe, and both forms belong to the same economic formation 
of society corresponding to capital. 

The first remarkable thing about this formula is that Land 
and Labor are placed indiscriminately by the side of Capital. 
The one. Capital, is a definite form of an element of pro- 
duction belonging to a definite mode of production having a 
definite cast. It is an element of production combined with 
and represented by a definite social form. The other two. 
Land on the one hand and Labor on the other, are two 
elements of the real labor process. In their material form 
they are common to all modes of production, they are the 
material elements of all processes of production, and have 
nothing to do with the social form of productive processes. 

Secondly. In this formula (Capital — Interest, Land — 
Ground-Eent, Labor — Wages of Labor), capital, land and 
labor respectively appear as sources of interest (instead of 
profit), ground-rent and wages, and these things appear as 
their fruits; capital, land and labor appear as the cause, in- 
terest, ground-rent and wages as the effect; and this is done 



950 Capitalist Production. 

in such a way that each individual source is combined with 
the thing which it puts forth and produces. All three rev- 
I enues, interest (instead of profit), rent, wages, are three parts 
/ of the value of the product ; generally speaking they are parts 
of value, or, expressed in money, they are certain parts of 
money, certain parts of price. The formula " Capital — 
Interest " has indeed the least meaning of any formula of 
capital; still it is one of its formulae. But how is land sup- 
posed to create value, that is, a socially defined quantity of 
labor, or even that particular portion of the value of its o\vn 
products which forms the rent ? For instance, land takes 
part as an agent of production, in the creation of a use-value, 
of a material product, of wheat. But it has nothing to do 
with the production of the value of wheat. To the extent 
that value is represented by wheat, we consider wheat merely 
as a definite quantity of materialized social labor, regard- 
less of the particular substance, in which this labor is ma- 
terialized, or of the particular use-value of this substance. 

This is not in contradiction with the fact that, in the 
first place, other circumstances being equal, the cheapness 
or dearness of the wheat depends upon the productivity of 
the soil. The productivity of agricultural labor is con- 
ditioned upon natural circumstances, and tlie same quantity 
of labor is represented by many or by few products, use- 
values, according to the productivity of such labor. How 
, large the quantity of labor may be, which is materialized in 
one bushel of wheat, depends upon the number of bushels 
produced by the same quantity of labor. It depends, in this 
case, upon the prdductivity of the soil, in what proportions 
of product value shall be materialized. But this value is 
given, independently of such a distribution. Value is rep- 
resented by use-value ; and use-value is a prerequisite for 
the creation of exchange-valiTC ; but it is folly to construe an 
antagonism by placing upon one side a use-value, like land, 
and upon the other side an exchange-value, and at that some 
particular portion of exchange-value. In the second place 
[here the manuscript stops short]. 



The Trinitarian Formula. 951 

III. 

Vulgar economy really does nothing else but to interpret, 
in doctrinaire fashion, the ideas of persons entrapped in cap- 
italist conditions of production and performing the function 
of agents in such production, to systematize and to defend 
these ideas. We need not wonder, then, that vulgar economy • 
feels particularly at home in the estranged form of mani- 
festation, in which economic conditions are absurd and com- 
plete contradictions, and that these conditions appear so much 
more self-explanatory to it, the more their internal con- 
nection is concealed. So long as the ordinary brain accepts 
these conceptions, vulgar economy is satisfied. But all 
science would be superfluous, if the appearance, the form, 
and the nature of things were wholly identical. Vulgar econ- 
omy has not the slightest inkling of the fact that the trinity 
from which it takes its departure, namely Land — Rent, 
Capital — Interest, Labor — Wages of Labor (or Price of 
Labor), are on their very face three incompatible proposi- 
tions. First we have the use-value Land, which has no 
value, and the exchange-value Rent. Llere a social relation 
is conceived as a thing and proportioned to nature. Two 
incommensurable magnitudes are supposed to be proportional 
to each other. Then we have Capital — Interest. If capi- 
tal is conceived as a certain sum of values independently 
represented by money, then it is manifestly nonsense to say 
that a certain value shall be valued higher than its value. 
It is precisely in the formula Capital — Interest that all 
intermediate links are eliminated, and capital is reduced to 
its most general formula, which for this reason is inex- 
plicable by itself and absurd. It is also for this reason that the 
vulgar economist prefers the formula Capital — Interest, 
with its occult faculty of making a value unequal to itself, 
to the formula of Capital — Profit, which approaches more 
nearly to the actual capitalist relations. Then again, driven 
by the restless thought that four is not five and that 100 
dollars cannot be 110 dollars, he flees from Capital as an 
exchange-value to the material substance of capital, to its 
use-value as a material requirement of labor, as machinery, 



952 Capitalist Production. 

raw materials, etc. By this means he succeeds in putting 
into the place of the first incomprehensible relation, which 
makes four equal to five, a wholly incommensurable one be- 
tween a use-value, a thing, upon the one hand, and a definite 
relation of social production, surplus-value, upon the other, 
as he does also in the case of private property in land. As 
soon as the vulgar economist has arrived at this incommensur- 
able magnitude, everything becomes clear to him, and he no 
longer feels the need of tliinking any further. For he has ar- 
rived at what is " rational " in bourgeois conception. Finally 
we have Labor — Wages of Labor, or Price of Labor. This 
last expression, as we have shown in Volume I, contradicts 
on its very face the conception of value as well as of price. 
Price, generally speaking, is but a definite expression of 
value. And " Price of Labor " is just as irrational as a 
yellow leogarithm. But here the vulgar economist is all the 
more satisfied, because it brings him to the deep understand- 
ing of the bourgeois, that he pays for labor with money, and 
because the fact that this formula contradicts the conception 
of value relieves him from all obligation to understand value. 



4 



We ^'^^ have seen that the capitalist process of production 
is a historically determined form of the social process of pro- 
duction in general. This process is on the one hand the 
process by which the material requirements of life are pro- 
duced, and on the other hand a process which takes place 
under specific historical and economic conditions of produc- 
tion and which produces and reproduces these conditions of 
production themselves, and with them the human agents of 
this j)rocess, their material conditions of existence and their 
mutual relations, that is, their particular economic form of 
society. For the aggregate of these relations, in which the 
agents of this production live with regard to nature and to 
themselves, and in which they produce, is precisely their so- 
ciety, considered from the point of view of its economic 
structure. Like all its predecessors, the capitalist process of 

"' Beginnins of Chapter XLVIII according to the manuscript. 



The Trinitarian Formula. 953 

production takes place under definite material conditions, 
which are at the same time the bearers of definite social re- 
lations maintained towards one another by the individuals 
in the process of producing their life's requirements. These 
conditions and these relations are on the one hand preriq- 
uisites, on the other hand results and creations of the capi- 
talist process of production. They are produced and repro- 
duced by it. We have also seen that capital (the capitalist 
is merely capital personified and functions in the process of 
production as the agent of capital), in the social process of 
production corresponding to it, pumps a certain quantity of 
surplus labor out of the direct producer, or laborer. It ex- 
torts this surplus without returning an equivalent. This sur- 
plus labor always remains forced labor in essence, no matter 
how much it may seem to be the result of free contract. This 
surplus labor is represented by a surplus-value, and this sur- 
plus-value is materialized in a surplus product. It must 
always remain surplus labor in the sense that it is labor 
performed above the normal requirements of the producer. 
In the capitalist system as well as in the slave system, etc., 
it merely assumes an antagonistic form and is supplemented 
by the complete idleness of a portion of society. A certain 
quantity of surplus labor is required for the purpose of dis- 
counting accidents, and by the necessary and progressive ex- 
pansion of the process of reproduction in keeping with the 
development of the needs and the advance of population, 
called accumulation from the point of view of the capitalist. 
It is one of the civilizing sides of capital that it enforces this 
surplus labor in a manner and under conditions which pro- 
mote the development of the productive forces, of social con- 
ditions, and the creation of the elements for a new and higher 
formation better than did the preceding forms of slavery, 
serfdom, etc. Thus it leads on the one hand to a stage, in 
which the coercion and the monopolization of the social de- 
velopment (including its material and intellectual ad- 
vantages) by a portion of society at the expense of the other 
portion are eliminated; on the other hand it creates the ma- 
terial requirements and the germ of conditions, which make 



954 Capitalist Production. 

it possible to combine this surplus labor in a higher form of 
society with a greater reduction of the time devoted to ma- 
terial labor. Eor, according to the development of the pro- 
ductive power of labor, surplus labor may be large in a 
small total labor day, and relatively small in a large total 
labor day. If the necessary labor time equals three, and 
the surplus labor three, then the total working day is equal 
to six, and the rate of surplus labor 100%. If the neces- 
sary labor is equal to nine, and the surplus labor three, then 
the total working day is twelve and the rate of surplus labor 
only 33^%. Furthermore, it depends upon the productivity 
of labor, how much use-value shall be produced in a definite 
time, hence also in a definite surplus labor time. The actual 
wealth of society, and the possibility of a continual expan- 
sion of its process of reproduction, do not depend upon the 
duration of the surplus labor, but upon its productivity and 
upon the more or less fertile conditions of production, under 
which it is performed. In fact, the realm of freedom does 
not commence until the point is passed where labor under the 
compulsion of necessity and of external utility is required. 
In the very nature of things it lies beyond the sphere of 
material production in the strict meaning of the term. Just 
as the savage must wrestle with nature, in order to satisfy 
his wants, in order to maintain his life and reproduce it, so 
civilized man has to do it, and he must do it in all forms of 
society and under all possible modes of production. With 
his development the realm of natural necessity expands, be- 
cause his wants increase; but at the same time the forces of 
production increase, by which these wants are satisfied. The 
freedom in this field cannot consist of anything else but of 
the fact that socialized man, the associated producers, regu- 
late their interchange with nature rationally, bring it under 
their common control, instead of being ruled by it as by some 
blind power; that they accomplish their task with the least 
expenditure of energy and under conditions most adequate 
to their human nature and most worthy of it. But it always 
remains a realm of necessity. Beyond it begins that develop- 
ment of human power, which is its own end, the true realm 



The Trinitarian Formula. 955 

of freedom, which, however, can flourish only upon that realm 
of necessity as its basis. The shortening of the working day 
is its fundamental premise. 

In a capitalist society, this surplus-value, or this surplus 
product (leaving aside accidental fluctuations in its distribu- 
tion and considering only the regulating law of these fluc- 
tuations), is divided among the capitalists as a dividend in 
proportion to the percentage of the total social capital held 
by each. In this shape the surplus-value appears as the 
average profit, which falls to the share of the capital, an 
average profit, which in its turn is separated into profits of 
enterprise and interest, and which in this way may fall into 
the hands of different kinds of capitalists. This appropria- 
tion and distribution of the surplus-value, or surplus prod- 
uct, by the capital however, has its barrier in private owner- 
ship of land. Just as the active capitalist pumps surplus 
labor, and with it surplus-value and surplus products in the 
form of profit out of the laborer, so the landlord in his turn 
pumps a portion of this surplus-value, or surplus product, 
out of the capitalist, in the shape of rent, according to the 
laws previously demonstrated by us. 

Hence, when speaking of profit as that portion of surplus- 
value, which falls to the share of capital, we mean average 
profit (profits of enterprise plus interest), which has already 
been limited by deducting the rent from the aggregate profits 
(identical in mass with the aggregate surplus-value). That 
rent has been deducted in the premise here. Profits of capi- 
tal (profits of enterprise plus interest) and ground-rent are 
merely particular constituents of surplus-value, categories, 
by which surplus-value is distinguished according to whether 
it falls into the hands of capital or of private land. This 
classification does not alter its nature in any way. If added 
together, these parts fonn the sum of the social surplus-value. 
Capital pumps the surplus labor, which is represented by sur- 
plus-value and surplus product, directly out of the laborers. 
To this extent it may be regarded as the producer of surplus- 
value. Private Land has nothing to do with the actual proc- 
ess of production. Its role is confined to carrying a por- 



956 Capitalist Production. 

tion of the produced surplus-value from the pockets of capi- 
tal to its own. However, the landlord plays a role in the 
capitalist process of production, not merely by the pressure, 
which he exerts upon capital, nor by the fact that large 
property in land is a prerequisite and condition of capitalist 
production, seeing that it separates the laborer from the 
means of production, but particularly because the landlord 
appears as the personification of one of the most essential re- 
quirements of production. 

Finally, the laborer, in his capacity as the ovmer and 
seller of his individual labor-power, receives a portion of his 
product under the name of wages, in which that portion of 
his labor is materialized, which we call necessary labor, that 
is, the labor required for the conservation and reproduction 
of his labor-power, regardless of whether the conditions of 
this conservation and reproduction are scanty or bountiful, 
favorable or unfavorable. 

Whatever may be the disparity of these conditions in other 
respects, they all have this in common: Capital yields year 
after year a profit to the capitalist, land a ground-rent to 
the landlord, and labor-power, under normal conditions and so 
long as it remains a useful labor-power, a wage to the laborer. 
These three parts of the total value produced annually, and the 
corresponding parts of the annually created total product, 
may be annually consumed by their respective owners, with- 
out draining the source of their reproduction (leaving aside 
for the present any consideration of accumulation). They 
are like the annually consumable fruits of a perennial tree, 
or rather of three trees. They form the annual revenue of 
three classes, the capitalist, the landlord and the laborer. They 
are revenues distributed at large by the active capitalist in 
his capacity as the direct exploiter of surplus labor and em- 
ployer of labor in general. In this way the capital appears 
to the capitalist, the land to the landlord, and the labor-power 
or rather the labor itself, to the laborer (since he sells labor- 
power only to the extent that it is actively employed, and 
since the price of his labor-power, as previously shoMm, nec- 
essarily appears as the price of his labor under the capital- 



The Trinitarian Formula. 957 

ist system) as three different sources of their respective rev- 
enues, of profit, ground-rent and wages. They are so in 
fact in the sense that capital is for the capitalist a peren- 
nial pumping machine of surplus labor, the land for the land- 
lord a perennial magnet attracting a portion of the surplus- 
value pumped out by capital, and finally, labor the continu- 
ally self-renewing condition and the ever self-renewing means 
of acquiring a portion of the value created by the laborer and 
with it a part of the social product measured by this portion 
of value, the necessities of life, under the title of wages. 
They are so, furthermore, in the sense that capital fixes a 
portion of the value, and thus of the product, of annual labor 
in the form of profit, the private land fixes another portion 
in the form of rent, and wage labor fixes a third portion in 
the form of wages, and converts them by this transformation 
into revenues of the capitalist, the landlord, and the laborer, 
without, however, creating the substance itself, which is trans- 
formed into these different categories. 

Their distribution rather presupposes the existence of this 
substance, namely the total value of the annual product, 
which is nothing but materialized social labor. But this is 
not the form, in which the matter appears to the human 
agents in production, to the human bearers of the various 
functions in the process of production. It rather appears 
to them reversed. We shall point out in the further course 
of our analysis, why this happens. Capital, ground-rent and 
labor appear to those human agents in production as three 
different, independent sources, from which arise three differ- 
ent constituents of the annually produced value, and of the 
product, in which it exists. They fancy that not merely the 
different forms of this value as revenues falling to the share 
of particular agents in the social process of production, but 
this value itself arises from these sources, and with it the 
substance of these forms of revenue. 

[Here one folio sheet of the manuscript is missing.] 

. Differential rent is bound up with the relative 
fertility of the soil, in other words, with qualities, which 
arise from the soil as such. But in the first jDlace, to the 



958 Capitalist Production. 

extent that it rests upon the different individual values of 
the products of different kinds of soil, it is determined only 
in the manner just mentioned; in the second place, to the 
extent that it rests upon the regulating general market value, 
which differs from the individual value, it is a social law 
carried through hj means of competition, and this law has 
nothing to do either with the soil or with the different de- 
grees of its fertility. 

It might seem that a rational relation was expressed at 
least in the term " Labor — • Wages of Labor." But this is 
no more the case than it is in the term " Land — Ground- 
Rent." To the extent that labor creates value, and material- 
izes itself in the value of commodities, it has nothing to do 
with the distribution of this value among the different cate- 
gories. And so far as it has the specifically social char- 
acter of wage labor, it does not create any value. We have 
already sho\^Ti that wages of labor, or price of labor, is but 
an irrational expression, for the value, or price, of labor- 
power ; and the definite social conditions, under which this 
labor-power is sold, have nothing to do with labor as a gen- 
eral agent in production. Labor is also materialized in that 
portion of the value of a commodity, which forms the price 
of labor-power in the shape of wages ; it creates this portion 
just as it does the other portions of the product; but it does 
not materialize itself in this portion to any other extent, or 
in any other way, tlian it does in the portions representing 
rent or profit. Besides, if we regard labor as a faculty cre- 
ating value, we do not look upon its concrete form as a means 
of production, but upon its social relation, which differs from 
that of wage labor. 

Even the term " Capital — Profit " is not correct here. If 
capital is viewed in the only relation, in which it produces 
surplus-value, namely in its relation to the laborer, in which 
it extorts surplus labor by compulsion exerted upon the wage 
laborer and his labor-power, then this surplus-value comprises 
not merely profit (profit of enterprise plus interest), but also 
rent, in short, the entire undivided surplus-value. Here, on 
the other hand, as a source of revenue, it is considered only 



The Trinitarian Formula. 959 

in relation with that portion, which falls into the hands of 
the capitalist. This is not the surplus-value which it ex- 
tracts, all together, but only that portion, which it extracts 
for the capitalist. Still more is all connection lost, as soon as 
the formula is transformed into " Capital — Interest." 

]^ow, having first considered the disparity of the above 
three sources, we must note, in the second place, that their 
products, their offspring, the revenues, all belong to the same 
sphere, namely that of value. However, this relation, not 
only between incommensurable magnitudes, but also between 
wholly unlike, mutually unrelated, and incomparable things, 
is accounted for by the fact that capital, like land and labor, 
is indeed taken only in its meaning as a material substance, 
that is, simply as a produced means of production, and in 
so doing both its relation to the laborer and its value are ig- 
nored. 

In the third place, if understood in this way, the formula 
Capital — Interest (Profit), Land — Eent, Labor — Wages 
of Labor, presents a uniform and symmetrical inconsistency. 
In fact, when wage labor does not appear as a socially deter- 
mined form of labor, but rather all labor is considered nat- 
urally as wage labor (because it appears in this light to peo- 
ple who are biased by capitalist conditions of production), 
then the particular, specific, social forms observed by the ma- 
terial requirements of labor (the produced means of produc- 
tion and the land) towards wage labor (which is in its turn 
a prerequisite of those conditions), easily coincide with the 
material existence of these requirements of labor, or with 
the form possessed by them generally in the actual labor 
process, divested of all historically determined social forms, 
or even of any social form. The changed form of the re- 
quirements of labor, divested of labor and facing it as an in- 
dependent element, which is assumed by the produced means 
of production when they become capital, and by the land 
when it becomes monopolized land, private property, this 
form belonging to a definite period of history then coincides 
with the existence and the function of the produced means 
of production and of the earth, in the general process of pro- 



960 Capitalist Production. 

diiction. Those means of production are then capital in 
themselves, bj nature ; capital is merely an " economic 
name " for those means of production ; and in the same way 
land is then naturally the earth monopolized by a certain 
number of landlords. Just as the products become an inde- 
pendent power opposed to the producer when they become 
capital and capitalists (for capitalists are but the personifica- 
tion of capital), so the land becomes personified in the land- 
lord and likewise rises on its feet to demand, as an independ- 
ent power, its share of the product created by its assistance. 
Thus it is not the land, which receives its due portion of its 
product for the reproduction and improvement of its produc- 
tivity, but the landlord, who takes a share of this product 
and sells or wastes it. It is evident that capital is condi- 
tioned upon labor in the capacity of wage labor. But it is 
likewise evident that if wage labor is taken as a point of de- 
parture for labor, so that the identity of any labor with wage 
labor appears to be a matter of course, then capital and 'mo- 
nopolized land must also appear as the natural form of the 
material requirements of production as distinguished from 
labor. It then appears natural for the material prerequi- 
sites of labor to be capital, and this looks like their general 
character necessarily arising from their function in the labor 
process. Capital and produced means of production thus be- 
come identical terms. In like manner land and land monop- 
olized by private owners become identical terms. In this 
way the requirements of production in their assumed natural 
capacity of capital are considered as the source of profit, and 
so does the land assume the guise of the source of rent. 

Labor as such, in its simple capacity as a useful produc- 
tive activity, refers to the means of production, not as con- 
cerns their form due to social conditions, but rather as con- 
cerns their material substance, their capacity as material and 
means of labor. And they are distinguished merely as use- 
values, the land as an unproduced, the others as produced 
means of production. If, then, labor is identical with wage 
labor, so is the particular social form assumed by the require- 
ments of labor in their opposition to labor identical ^vith 



The Trinitarian Formula. 961 

their material existence. The requirements of labor are then 
natural capital, and the land is natural private property. 
The formal separation of these requirements of labor from 
labor, the peculiar form of their independence as compared 
to labor, thus becomes a necessary attribute, an inherent char- 
acter, inseparable from the material conditions of production. 
The social character given to them in the process of capital- 
ist production by a definite epoch of history becomes a nat- 
ural character belonging to them, as it were, from time im- 
memorial, as elements in the process of production. So it 
is that the respective part played by the earth as the origi- 
nal field of activity of labor, as the realm of natural forces, 
as the pre-existing armory of all objects of labor, and the 
other respective part played by the produced means of pro- 
duction (instruments, raw materials, etc.) in the general 
process of production, must seem to be expressed in the re- 
spective shares claimed by them as capital and private land, 
in other words, which are pocketed by their social representa- 
tives in the form of profit (interest) and rent, just as the 
laborer seems to receive in his wages that share which is due 
to his labor in the process of production. Rent, profit and 
wages thus seem to grow out of the role played by the land, 
the produced means of production, and the labor in the sim- 
ple labor process, even when we look upon this labor process 
as one passing merely between man and nature, without re- 
gard to any historical determination. 

It is merely the same thing in another form, when it is 
argued that the product, in which the labor of the wage la- 
borer materializes itself for himself, as his income, his rev- 
enue, is just his wages, is just that portion of value (and of 
the social product measured by this value), which represents 
his wages. If wage labor is identical with any labor, then 
so is the wage and the product of labor, and so is the por- 
tion of value representing wages and the value created by 
any labor. But in this way the other portions of value, 
profit and rent, also become independent and separated from 
wages, and must seem to arise from sources of their own, 
which differ from that of wages and are independent of it. 

31 



962 Capitalist Production. 

They must seem to arise out of the participating elements 
of production, by the owners of which they are claimed, so 
that profit seems to come from the means of production, the 
material elements of capital, and rent from the earth, or na- 
ture, represented by the landlord (Koscher). 

Private land, capital and wage labor are thus transformed 
into actual sources of revenue. It is thought that rent, profit 
and wages and the respective portions of the product repre- 
senting these parts of value, in which they exist and for 
which they may be exchanged, arise from these sources di- 
rectly, and that the value of the product itself arises in the 
last analysis from them.^'*^ They are not considered as 
sources of revenue in the sense that capital assigns to the 
capitalist, in the form of profit, a portion of the surplus-value 
extracted by him from labor, that monopoly in land attracts 
for the landlord another portion in the form of rent, and that 
labor gives to the laborer the remaining portion of value in 
the form of wages. They are not conceived as sources, by 
which one portion of value is transformed into profit, another 
into rent, a third into wages. 

In the case of the simplest categories of the capitalist mode 
of production, and even of the production of commodities, in 
the case of commodities and money, we have already pointed 
out the mystifying character, which transforms the social 
conditions that use the material elements of wealth as bear- 
ers of production into qualities of these things themselves 
(commodities) and still more pronouncedly transforms the 
interrelations of production themselves into a thing (money). 
All forms of society, to the extent that they reach the stage 
in which commodities are produced and money circulated, 
take part in this perversion. But under the capitalist mode 
of production and in the case of capital, which forms its rul- 
ing category, its determining relationship in production, this 
enchanted and perverted world develops still more. If we 
consider capital in the actual process of production, as a 

115 Wages, profit, and rent are the three original sources of all revenue, as well 
as of all exchangeable value (A. Smith). — In this way the causes of material 
production are at the same time the sources of the existing primitive revenues. 
(.Storch, I., p. 259.) 



The Trinitarian Formula. 963 

means of extracting surplus-value, then this relationship is 
still very simple. The actual connection impresses itself 
upon the bearers of this process, the capitalists, and they are 
conscious of it. The violent struggle about the limits of the 
working day shows this clearly. But even within this un- 
disguised sphere, the sphere of the direct process between la- 
bor and capital, matters do not rest in this simplicity. With 
the development of relative surplus-value in the typical, spe- 
cifically capitalist mode of production, by which the social 
powers of production of labor are developed, these powers of 
production and the social interrelations of labor in the actual 
labor process seem transferred from labor to capital. This 
endows capital with a very mystic nature, since all of labor's 
social powers of production appear to be due to capital, not 
to labor as such, and seem to sprout from the womb of capital 
itself. Then the process of circulation intervenes, with its 
changes of substance and form, to which all parts of the cap- 
ital, even of agricultural capital, must submit to the extent 
that the specifically capitalist mode of production develops. 
This is a sphere, in which the conditions under which value 
is originally produced are pushed completely into the back- 
ground. Even in the direct process of production the cap- 
italist acts at the same time in the capacity of a producer of 
commodities, of a manager in the production of commodities. 
Hence this process of production appears to him by no means 
as a simple process by which surplus-value is produced. But 
whatever may be the surplus-value extorted by capital in the 
actual process of production and offered in the shape of com- 
modities, the value and surplus-value contained in the com- 
modities must first be realized in the process of circulation. 
And both the restitution of the values advanced in produc- 
tion and, particularly, the surplus-value contained in the 
commodities do not seem to be merely realized in the circula- 
tion, but actually to rise from it. This appearance of things 
is strengthened by two circumstances. In the first place, it 
is strengthened by the profit made through cheating, cunning, 
inside knowledge, ability and a thousand market constella- 
tions in the selling of commodities. In the second place, it 



964 Capitalist Production. 

is enhanced by the circumstance that a second determining 
element, the time of circulation, is here added to the labor 
time. It is true that the time of circulation asserts itself 
as a negative barrier against the formation of value and sur- 
plus-value, but it has the appearance of being quite as posi- 
tive a cause as labor itself and of carrying into the problem 
a determining element independent of labor and due to the 
nature of capital itself. 

In Volume II we had of course, to present merely the 
forms created and determined by this sphere of circulation, 
to demonstrate the further development of the form of cap- 
ital, which takes place in it. But in reality this sphere is 
the sphere of competition, which, considered in each indi- 
vidual case, is dominated by accident. In other words, the 
internal law, which enforces itself in these accidents and 
regulates them, does not become visible until large numbers 
of these accidents are grouped together. It remains invisi- 
ble and unintelligible to the individual agents in production. 
Furthermore: The actual process of production, considered 
as the unison of the strict process of production and the proc- 
ess of circulation, gives rise to new formations, in which the 
vein of the internal connections is lost, the conditions of pro- 
duction become separate identities, and the component parts 
of value become ossified into forms independent of one an- 
other. 

We have seen that the conversion of surplus-value into 
profit is determined as much by the process of circulation 
as it is by the process of production. The surplus-value, in 
the form of profit, is no longer referred back to that portion 
of capital, which is invested in labor and from which it 
arises, but to the total capital. The rate of profit is regu- 
lated by laws of its o"wn, which admit, or even require, a 
change in it while the rate of surplus-value remains unal- 
tered. All this obscures more and more the true nature of 
surplus-value and thus the actual running gear of capital. 
Still more is this done by the transformation of profit into 
average profit and of the values into prices of production, 
into the regulating averages of the market prices. Here a 



The Trinitarian Formula. 



y^'j 



complicated social process intervenes, the process by wliicli 
the capitals are equalized, and which separates the relative 
average prices of the commodities from their values, as it 
separates also the average profits of the various spheres of 
production (quite aside from the individual investments of 
capital in each particular sphere of production) from the 
actual exploitation of labor by the different capitals. JSTo 
longer does the average price of the commodities merely seem 
to differ from their value, but it actually does differ, it ac- 
tually is not the same as the labor realised in them, and the 
average profit of some particular capital differs from the 
surplus-value, which this capital has extracted from the la- 
borers employed by it. The value of the commodities ap- 
pears no longer directly do^vn to their very last boundaries, 
but remains visible only in the influence of the fluctuating 
productivity of labor upon the rise and fall of the prices of 
production. The profit seems to be determined only inci- 
dentally by the direct exploitation of labor, namely to the 
extent that this exploitation permits the capitalist to realize 
a profit differing froiii the average profit at the regulating 
market prices, which appear to be independent of such ex- 
ploitation. The normal average profits themselves seem 
immanent in capital and independent of exploitation. 
The abnormal exploitation, or even the average exploi- 
tation under exceptionally favorable conditions, seems to 
determine only the deviations from the average profit, not 
this profit itself. The division of profit into profit of enter- 
prise and interest (not to mention the intervention of com- 
mercial profit and financial profit founded upon the circula- 
tion and seemingly arising wholly from it and not at all 
from the process of production itself) completes the selfde- 
pendence of the form of surplus-value, the ossification of its 
form as compared to its substance. One portion of the profit, 
as compared to the other, separates itself wholly from the 
relationship of capital as such and pretends to be an off- 
spring, not of the process by which wage labor is exploited, 
but of the wage labor of the capitalist himself. On the other 
hand, interest then seems to be independent both of the wage 



966 Capitalist Production. 

labor of the laborer and of that of the capitalist, and to arise 
from no other source but capital itself. Capital, appearing 
originally, on the surface of circulation, as a capitalist fetish, 
as a self-expanding value, now assumes in the form of inter- 
est-bearing capital, its most estranged and peculiar shape. 
For this reason the formula " Capital — Interest," as the 
third link in " Land — Eent " and " Labor — Wages of La- 
bor," appears much more consistent than " Capital — Profit," 
since in " Profit " there still remains a recollection of its or- 
igin, which is not only extinguished in " Interest," but also 
placed in opposition to this origin and fixed in this antag- 
onistic form. 

Capital, as an independent source of surplus-value, is fi- 
nally joined by private land, which acts as a barrier against 
average profit and transfers a portion of the surplus-value to 
a class that neither does any work of its ovm, nor directly 
exploits labor, nor can find moral consolation, like interest- 
bearing capital, in devotional subterfuges such as the alleged 
risk and sacrifice of lending money to others. Since a part 
of the surplus-value seems here bound up directly, not with 
a social relation, but with a natural element, the land, the 
form of the mutual estrangement and ossification of the vari- 
ous parts of surplus-value is completed, their internal connec- 
tion completely disrupted, and its source entirely buried, be- 
cause the relations of production have been made self depend- 
ent in spite of the fact that they are bound up with the dif- 
ferent material elements of the process of production. 

In Capital — Profit, or better Capital — Interest, Land — 
Rent, Labor — Wages of Labor, in this economic trinity ex- 
pressing professedly the connection of value and of wealth in 
general with their sources, we have the complete mystification 
of the capitalist mode of production, the transformation of 
social conditions into things, the indiscriminate amalgama- 
tion of the material conditions of production with their his- 
torical and social forms. It is an enchanted, perverted, top- 
sy-turvy world, in which Mister Capital and Mistress Land 
carry on their goblin tricks as social characters and at the 
same time as mere things. It is the great merit of classic 



The Trinitarian Formula. 967 

economy to have dissolved this false appearance and illusion, 
this self-isolation and ossification of the different social ele- 
ments of wealth by themselves, this personification of things 
and conversion of conditions of production into entities, this 
religion of everyday life. It did so by reducing interest to 
a portion of profit, and rent to the surplus above the average 
profit, so that both of them meet in surplus-value. It repre- 
sented the process of circulation as a mere metamorphosis of 
forms, and finally reduced value and surplus-value of com- 
modities to labor in the actual process of production. Never- 
theless even the best spokesmen of classic economy remained 
more or less the prisoners of the world of illusion which they 
had dissolved critically, and this could not well be otherwise 
from a bourgeois point of view. Consequently all of them 
fall more or less into inconsistencies, half-way statements, and 
unsolved contradictions. On the other hand, it is equally 
natural that the actual agents of production felt completely 
at home in these estranged and irrational forms of Capital — 
Interest, Land — Rent, Labor — Wages of Labor, for these 
are the forms of the illusion, in which they move about and 
in which they find their daily occupation. It is also quite 
natural that vulgar economy, which is nothing but a didactic, 
more or less dogmatic, translation of the ordinary conceptions 
of the agents of production and which arranges them in a 
certain intelligent order, should see in this trinity, which is 
devoid of all internal connection, the natural and indubitiable 
basis of its shallow assumption of importance. This formula 
corresponds at the same time to the interests of the ruling 
classes, by proclaiming the natural necessity and eternal jus- 
tification of their sources of revenue and raising them to the 
position of a dogma. 

In our description of the way, in which the conditions of 
production are converted into entities and into independent 
things as compared to the agents of production, we do not en- 
ter into a discussion of the manner, in which the interrela- 
tions of the world market, its constellations, the movements 
of market prices, the periods of credit, the cycles of industry 
and commerce, the changes from prosperity to crises, appear 



968 Capitalist Production. 

to these agents as overwhelming natural laws that rule them 
irresistibly and enforce their rule over them as blind necessi- 
ties. We do not enter into such a discussion, because the ac- 
tual movements of competition belong outside of our plan, 
and because we have to present only the internal organization 
of the capitalist mode of production, as it were, in its ideal 
average. 

In preceding forms of society this economic mystification 
arises principally in the case of money and of interest-bearing 
capital. In the nature of the case it is out of the question 
where, in the first place, production is mainly for use, for the 
satisfaction of immediate wants, and where, in the second 
place, slavery or serfdom form the broad foundation of social 
production, as they did in antiquity and during the Middle 
Ages, The rule of the conditions of production over the pro- 
ducers in those systems is concealed by the relation between 
masters and servants, which appear and are visible as the di- 
rect motive powers of the process of production. In the prim- 
itive societies, in which natural communism prevails, and 
even in the ancient urban communes, it is this community it- 
self which appears as the basis of production, and its repro- 
duction appears as its ultimate purpose. Even in the medieval 
guild system neither capital nor labor appear imtrammeled. 
Their relations are rather defined by the corporate rules, by 
the conditions connected with them, and by the conceptions 
of professional duties, mastership, etc., which accompany 
them. Only when the capitalist mode of production . . . 



CHAPTEE XLIX. 

A CONTRIBUTION TO THE ANALYSIS OF THE PEOCESS OF PEO- 
■ DUOTION. 

Foe the purposes of the following analysis we may leave out 
of consideration the distinction between the price of produc- 



Analysis of Production. 969 

tion and the value, since this distinction falls altogether to 
the ground, when, as is the case here, the value of the total 
annual product of labor is under discussion, in other words, 
the value of the product of the total social capital. 

Profit (profit of enterprise plus interest) and rent are noth- 
ing but peculiar forms assumed by particular parts of the 
surplus-value of commodities. The magnitude of the sur- 
plus-value is the limit of the sum of parts, into which it may 
be divided. The average profit plus the rent are, therefore, 
equal to the surplus-value. It is possible that a part of the 
surplus labor contained in the commodities, and thus of the 
surplus-value, does not take part directly in the equalization 
tending toward an average rate of profit, so that a part of the 
value of commodities is not expressed at all in their price. 
But in the first place, this is balanced either by the fact that 
the rate of profit increases, when the commodities sold below 
their value form an element of the constant capital, or by the 
fact that profit and rent are represented by a larger product, 
when the commodities sold below their value pass over into 
that portion of the value which is consumed as revenue in the 
shape of articles for individual consumption. In the second 
place, the average movement strikes the balance. At any 
rate, even if a portion of the surplus-value is not expressed 
in the price and is lost so far as the formation of prices is 
concerned, the sum of average profit plus rent in their normal 
form can never be larger than the total surplus-value, al- 
though it may be smaller. Their normal form is conditioned 
upon wages corresponding to the value of labor-power. Even 
monopoly rent, to the extent that it is not a deduction from 
wages, and does not constitute a special category, must be in- 
directly always a part of the surplus-value. If it is not a 
part of the surplus price above the cost of production of the 
commodity itself, of which it is a constituent part, as in the 
case of differential rent, or a spare portion of the surplus- 
value of the commodity itself, of which it is a constituent part, 
above that portion of its o'wn surplus-value which is measured 
by the average profit (as in the case of absolute rent), it is 



970 Capitalist Production. 

at least a part of the surplus-value of other commodities, that 
is, of commodities which are exchanged for this commodity, 
which has a monopoly price. 

The sum of average profit plus ground-rent can never be 
greater than the magnitude of which they are the parts and 
which exists before they are so partitioned. It is, therefore, 
immaterial for our discussion, whether the entire surplus- 
value of the commodities, that is, all the surplus labor mate- 
rialized in the commodities, is realized in their price or not. 
The surplus labor is not entirely realized for the simple rea- 
son that, owing to the continual change in the amount of so- 
cially necessary labor for the production of a certain com- 
modity, a change arising out of the continual change in the 
productive power of labor, one portion of the commodities is 
always produced under abnormal conditions and must, there- 
fore, be sold below its individual value. At any rate, profit 
plus rent equal the total realized surplus-value (surplus-la- 
bor), and for the purposes of the present discussion the real- 
ized surplus-value may be assumed as equal to all surplus- 
value ; for profit and rent are realized surplus-value, or gen- 
erally speaking the surplus-value which passes into the prices 
of commodities, which is practically all the surplus-value 
forming a constituent part of this price. 

On the other hand, the wages, which are the third signifi- 
cant form of revenue, are always equal to the variable portion 
of capital, which is the portion invested, not in means of pro- 
duction, but in the purchase of living labor-power, in the pay- 
ment of laborers. (The labor paid in the expenditure of rev- 
enue is itself paid in wages, profit, or rent, and therefore does 
not form any portion of the value of commodities by which 
it is paid. Hence it is not considered in the analysis of the 
value of commodities and of the component parts into which 
it is divided.) Wages are the materialization of that portion 
of the total working day of the laborer, in which the value of 
the variable capital and thus the price of labor is reproduced. 
It is that portion of the value of commodities, in which the 
laborer reproduces the value of his own labor-power, or the 
price of his labor. The total working day of the laborer is 



Analysis of Production. 971 

divided into two parts. One portion is that in which he per- 
forms the amount of labor necessary to reproduce the value 
of his own means of subsistence. It is the paid portion of 
his total labor, that portion which is necessary for his own 
maintenance and reproduction. The entire remaining por- 
tion of the working day, the entire surplus quantity of labor 
performed above the value of the labor realized in his wages, 
is surplus labor, unpaid labor, represented by the surplus- 
value of his entire product in commodities (and thus by a sur- 
plus quantity of commodities), surplus-value, which in its 
turn is divided into differently named parts, into profit (profit 
of enterprise plus interest) and rent. 

The entire portion of the value of commodities, then, in 
which the total labor of the laborers added during one day, 
or one year, is realized, is divided into the value of wages, 
into profit and into rent. For this total labor is divided into 
necessary labor, by which the laborer creates that portion of 
the value of his product, with which he is himself paid, that 
is, his wages, and into unpaid surplus labor, by which he cre- 
ates that portion of the value of the product, which represents 
surplus-value and which is later divided into profit and rent. 
Aside from this labor the laborer does not perform any labor, 
and he does not create any value outside of the total value of 
the product, which assumes the forms of wages, profit and 
rent. The value of the annual product, in which the new 
labor added by the laborer during the year is incorporated, is 
equal to the wages, or the value of the variable capital, plus 
the surplus-value, which in its turn is divided into profit and 
rent. 

The entire portion of the value of the annual product, then, 
which the laborer creates in the course of the year, is expressed 
in the annual sum of the values of the three revenues, the 
values of wages, profit, and rent. Evidently, therefore, the 
value of the constant portion of capital is not reproduced in 
the value of the annually created product, for the wages are 
only equal to the value of the variable portion of capital ad- 
vanced in production, and rent and profit are only equal to 
the surplus-value, the produced excess of value above the total 



972 Capitalist Production. 

value of the advanced capital, wliicli is equal to the value of 
, the constant plus the value of the variable capital. 

It is immaterial for the difficulty to be solved here that a 
■portion of the surplus-value converted into the form of profit 
and rent is not consumed as revenue, but is accumulated. 
That portion, which is saved up as a fund for accumulation, 
sers^es for the formation of new, additional, capital, but not 
for the reproduction of the old capital, neither of that portion 
of the old capital which is invested in wages nor of that which 
is invested in means of production. AVe may, therefore, as- 
sume here for the sake of simplicity that the revenues pass 
wholly into individual consumption. The difficulty has a 
twofold aspect. On the one hand, the value of the annual 
product, in wdiich these revenues, wages, profit and rent, are 
consumed, contains a portion of value, which is equal to the 
portion of value of the constant part of capital used up in it. 
It contains this portion of value in addition to the other por- 
tion, which resolves itself into wages and that which resolves 
itself into profit and rent. Its value is therefore equal to 
wages plus profit plus rent plus C (its constant portion of 
value). How can an annu:ally produced value, which equals 
only wages plus profit plus rent, buy a product which has a 
value of wages plus profit plus rent plus C ? 

How can the annually produced value buy a product, which 
has a higher value than its own ? 

On the other hand, if we leave aside that portion of the 
constant capital which did not pass over into the product, and 
which, therefore, continues to exist after the annual produc- 
tion of commodities as it did before it ; in other words, if we 
leave aside the employed, but not consumed fixed capital, we 
find that the constant portion of the advanced capital has been 
wholly transferred to the new product in the shape of raw 
and auxiliary materials, whereas a part of the instruments of 
labor has been wholly consumed and another part of them only 
partially, so that only a part of its value has been consumed 
in production. This entire portion of the constant capital, 
which has been consumed in production, must be reproduced 



Analysis of Production. 973 

in its natural form. Assuming all other circumstances, par- 
ticularly the productive power of labor, to remain unchanged, 
this portion requires for its reproduction the same amount of 
labor as before, that is, it must be replaced by its equivalent 
in value. If it is not, then reproduction itself cannot take 
place on the old scale. But who is going to perform this 
labor, and who performs it? 

In the first question, to-wit, Who is going to pay for the 
constant portion of value, and with what ? it is assumed that 
the value of the constant capital consumed in production re- 
appears as a part of the value of the product. This does not 
contradict the assumptions of the second difficulty. For we 
have demonstrated already in Volume I, Chapter VII (The 
Labor Process and the Process of Producing Surplus- Value), 
that the mere addition of new labor, although it does not re- 
produce the old value, but creates merely an addition to it, 
creates only additional value, still preserves at the same time 
the old value in the product ; that this is done, however, by 
labor, not to the extent that it is a labor producing 
value, labor in general, but in its function as a definite pro- 
ductive labor. Therefore no additional labor was necessary 
for the purpose of preserving the value of the constant por- 
tion in the product, in which the revenue, that is, the entire 
value created during the year, is expended. On the other 
hand, it requires new additional labor to replace the value 
and use-value of the constant capital consumed during the 
past year, for unless this is replaced no reproduction is pos- 
sible at all. 

All newly added labor is represented in the value newly 
created during the year, and this is divided into the three 
revenues, that is, into wages, profit and rent. On the one 
hand, then, no spare social labor remains for the reproduc- 
tion of the consumed constant capital, which must partially 
be replaced in its natural form and its value, and partially 
merely in its value (for the mere wear and tear of fixed cap- 
ital). On the other hand, the value annually created by la- 
bor, divided into wages, profit and rent, and to be spent in 



974 Capitalist Prodtiction. 

these forms, does not suffice to pay for, or buy, the constant 
portion of capital, which must be contained in the annual 
product outside of itself. 

We see, then, that the problem presented here has already 
been solved in the discussion of the reproduction of the total 
social capital. Volume II, Part III. We return to it here, 
in the first place, for the reason that the surplus-value had not 
been developed in that volume into its revenue forms, profit 
(profit of enterprise plus interest) and rent and, therefore, 
could not be treated in these forms; in the second place, be- 
cause the formula of wages, profit and rent is connected with 
an incredible aberration of the analysis, which pervades the 
entire political economy since Adam Smith. 

In Volume II we divided all capital into two great classes : 
Class I, producing means of production, and Class II, pro- 
ducing articles of individual consumption. The fact that 
certain products may serve as well for personal consumption 
as for means of production (a horse, cereals, etc.), does not in- 
validate the absolute correctness of this division in any way. 
It is, in fact, no hypothesis, but merely the expression of a 
fact. 

Take the annual product of a certain country. One por- 
tion of the product, whatever may be its ability to serve as 
means of production, passes over into individual consump- 
tion. It is the product for which wages, profit and rent are 
spent. This product is the product of a definite section of 
the social capital. It is possible that this same capital may 
also produce products belonging to Class I. To the extent 
that it does that, it is not the portion of capital consumed in 
the shape of the product of Class II, a product belonging ac- 
tually to individual consumption, which supplies the produc- 
tively consumed products passing into Class I. This entire 
product II, which passes into individual consumption, and 
for which the revenue is spent, is the material form of the 
capital consumed in it plus the produced surplus. It is also 
the product of a capital invested in the mere production of 
articles of consumption. And in the same way section I of 
the annual product, which serves as means of reproduction 



Analysis of Production. 975 

and consists of raw materials and instruments of labor, is the 
product of a capital invested in the mere production of means 
of production. By far the greater part of the products form- 
ing the constant capital exists also materially in a form, in 
which it cannot pass into individual consumption. To the 
extent that it might be so used, for instance, to the extent that 
a farmer might eat his seed corn, butcher his teaming cattle, 
etc., the economic barrier puts him into the same position in 
which he would be if this portion did not have a consumable 
form. 

We have already said that we leave out of consideration, in 
both classes, the fixed part of the constant capital, which con- 
tinues to exist so far as its material substance and value are 
concerned, independently of the annual product of both 
classes. 

In Class II, consisting of products for which wages, profit 
and rent are spent and the revenues thus consumed, the prod- 
uct consists of three parts, so far as its value is concerned. 
One part is equal to the value of the constant portion of cap- 
ital consumed in production ; a second part is equal to the value 
of the variable capital invested in wages ; finally, a third part 
is equal to the value of the produced surplus-value, that is, 
equal to profit plus rent. The first part of the product of 
Class II, the value of the constant portion of capital, cannot 
be consumed either by the capitalists of Class II, or by the 
laborers of this class, or by the landlords. It does not form 
any part of their revenues, but must be replaced in its natural 
form, and must be sold in order that this may be done. On 
the other hand, the other two parts of this product are equal 
to the value of the revenues created in this class, equal to 
wages plus profit plus rent. 

In Class I the product consists of the same parts, so far as 
its form is concerned. But that part, which here forms rev- 
enue, wages plus profit plus rent, in short, the variable por- 
tion of capital plus the surplus-value, is not consumed here 
in the natural form of the products of this Class I, but in 
products of the Class II. The value of the revenues of Class 
I must, therefore, be consumed in the shape of that portion 



9/6 Capitalist Production. 

of the products of Class II, which forms the constant capital 
of II, that must be reproduced. That portion of the product 
of Class II, which must reproduce its constant capital, is con- 
sumed in its natural form by the laborers, the capitalists and 
the landlords of Class I. They spend their revenues for this 
product of II. On the other hand, the product of I, to the 
extent that it represents a revenue of Class I, is productively 
consumed in its natural form by Class II, whose constant cap- 
ital it replaces in its natural form. Finally, the consumed 
constant portion of the capital of Class I is replaced out of 
the products of this class itself, which consist of instruments 
of labor, raw and auxiliary materials, either by an exchange 
of the capitalists of I among themselves, or in such a way that 
a portion of these capitalists can use their own product once 
more as means of production. 

Let us take the diagram used in Volume II, Chapter XX, 
II, for simple reproduction: 

I. 4000 c + 1000 V + 1000 s =6000 
II. 2000 c + 500 V + 500 s = 3000, Total 9000. 

According to this, the producers and landlords of II con- 
sume 500 V -f- 500 s ==, 1,000 as revenue ; 2,000 c remain to be 
reproduced. This is consumed by the laborers, capitalists 
and rent owners of I, whose income is 1,000 v -f- 1,000 s = 
2,000. The consumed product of II is consumed as a rev- 
enue by I, and that portion of the revenue of I, which repre- 
sents an unconsumable product, is consumed as a constant cap- 
ital by II. It remains to account for the 4,000 c of I. This 
is replaced out of the product of I itself, which is 6,000, or 
rather 6,000 minus 2,000, for these last 2,000 have already 
been converted into constant capital of II. It should be noted 
that tliese numbers have been chosen at -random, and so the 
proportion between the value of the revenues of I and the 
value of the constant capital of II also appears arbitrary. 
But it is evident that so far as the process of reproduction is 
normal and takes place under otherwise unchanged circum- 
stances, leaving aside the question of accumulation, the sum 
of the values of wages, profit and rent in Class I must b'^, 
equal to the value of the constant portion of the capital of 



Analysis of Production. 977 

Class 11. Otherwise Class II will not be able to reproduce its 
constant capital, or Class I will not be able to convert its rev- 
enue from unconsumable into consumable articles. 

The value of the annual product in commodities, just like 
the value of the commodities produced bj some particular in- 
vestment of capital, and like the value of any individual com- 
modity, resolves itself into two parts: Part A, which re- 
places the value of the advanced constant capital, and Part 
B, which presents itself in the form of wages, profit and rent. 
This last part of value, B, stands in opposition to the Part A 
to the extent that this Part A, under otherwise equal circum- 
-stances, in the first place never assumes the form of reve- 
nue, and in the second place always flow^s back in the form 
of capital, and of constant capital at that. The other por- 
tion, B, however, carries within itself an antagonism. Profit 
and rent have this in common with wages that all three 
of them are forms of revenue. ISTevertheless they differ es- 
sentially from each other in that profit and rent are surplus- 
value, unpaid labor, whereas wages are paid labor. That 
portion of the value of the product, which represents spent 
wages and reproduces wages, and must be reconverted into 
wages under the conditions assumed by us, flows back first 
in the shape of variable capital, as a portion of the capital that 
once more must be advanced for the purposes of reproduction. 
This portion has a double function. It exists first in the 
form of capital and is exchanged as such for labor-power. 
In the hands of the laborer it is converted into revenue, 
which he draws out of the sale of his labor-power, and as 
revenue it is spent for means of subsistence and consumed. 
This double process is revealed through the intervention of 
money circulation. The variable capital is advanced in 
money, paid out as wages. This is its first function as cap- 
ital. It is converted into labor-power and transformed into 
the expression of labor-power, into labor. This is the capi- 
talist's side of the process. In the second place, the laborers 
buy with this money a part of the commodities produced by 
them, which part is measured by this money, and is con- 
sumed by them as revenue. If we imagine the circulation 

3J 



gyS Capitalist Production. 

of money to be eliminated, then a part of the product of 
the laborer is in the hands of the capitalist in the form of 
existing capital. He advances this part as capital, hands 
it over to the laborer for new labor-power, while the laborer 
consumes it directly or indirectly by means of exchange for 
other commodities, as his revenue. That portion of the 
value of the product, then, which is destined in the course 
of reproduction to be converted into wages, into revenue 
for the laborers, flows back at first into the hands of the capi- 
talist in the form of capital, more accurately of variable 
capital. That it should flow back in this form is an es- 
sential requirement, in order that labor as wage labor, the 
means of production as capital, and the process of produc- 
tion itself as a capitalist process may always be reproduced. 

In order to avoid useless difficulties, it is necessary to dis- 
tinguish the gross output and the net output from the gross 
income and the net income. 

The gross output, or the gross product, is the total repro- 
duced product. With the exception of the employed but 
not consumed portion of the fixed capital, the value of the 
gross output, or of the gross product, is equal to the value of 
' the capital advanced and consumed in production, that is, 
the constant and variable capital plus the surplus-value, 
which resolves itself into profit and rent. Or, if we con- 
sider the product of the total social capital instead of that 
of some individual capital, the gross output is equal to the 
material elements forming the constant plus variable capital, 
plus the material elements of the surplus product, in which 
profit and rent are materialized. 

The gross income is that portion of value and that portion 
of the gross product measured by it, which remains after 
deducting that portion of value and that portion of the total 
product measured by it, which replaces the constant capital 
advanced and consumed in production. The gross income, 
then, is equal to the wages (or to that portion of the product 
which is to become once more the income of the laborer) 
plus the profit plus the rent. On the other hand, the net 
income is the surplus-value, and thus the surplus product, 



Analysis of Production. 979 

■which remains after the deduction of the wages, and which, 
in fact, represents the surplus-value realized by capital and 
to be divided with the landlords, and the surplus product 
measured by it. 

'Now we have seen that the value of each individual com- 
modity and the value of the total commodities produced by 
each individual capital is divided into two parts, one of 
which replaces only constant capital, and the other of which, 
although a part of it flows back as variable capital, that is, 
also in the form of capital, nevertheless is destined to be 
w^holly transformed into a gross income, and to assume the 
form of wages, profit and rent, the sum of which makes up 
the gross income. We have also seen that the same is true 
of the value of the annual total product of a certain society. 
There is only this difference between the product of the in- 
dividual capitalist and that of society: From the point of 
view of the individual capitalist the net income differs from 
the gross income, for this last includes the wages, whereas 
the first excludes them. Viewing the income of the whole 
society, the national income consists of wages plus profit 
plus rent, that is, of the gross income. But even this is an 
abstraction to the extent that the entire society, on the basis 
of capitalist production, places itself upon the capitalist 
standpoint and considers only the income divided into profit 
and rent as the net income. 

On the other hand, the dream of men like Say, to the 
effect that the entire output, the entire gross output, resolves 
itself into the net income of the nation and cannot be dis- 
tinguished from it, so that this distinction disappears from 
the national point of view, is but the necessary and ultimate 
expression of the absurd dogma pervading political economy 
since Adam Smith, that the value of commodities resolves 
itself in the last analysis into an income, into wages, profit 
and rent.^*® 

>** Ricardo makes the following very apt comment on thoughtless Say: "Of 
net produce and gross produce, Mr. Say speaks as follows: 'The whole value 
produced is the gross produce; this value, after deducting from it the cost of 
production, is the net produce. (Vol. II, p. 491.) There can, then, be no net 
produce, because the cost of production, according to Mr. Say consists of rent, 



980 Capitalist Production. 

Of course, it is very easy to understand, in the case of 
eacli individual capitalist, that a portion of Ms product must 
be reconverted into capital (even aside from an expansion 
of reproduction, or accumulation), not only into variable 
capital, whicli is destined to become in its turn an income 
for the laborers, a form of revenue, but also into constant 
capital, which can never be converted into revenue. The 
simplest observation of the process of production shows this 
clearly. The difficulty does not begin, until the process of 
production is studied as a whole. The fact has to be faced 
that the value of the entire portion of the product, which 
is consumed in the form of wages, profit and rent (imma- 
terial whether the consumption is individual or productive), 
resolves itself under analysis wholly into a sum of values 
formed by wages plus profit plus rent, that is, into the total 
value of the three revenues, although the value of this por- 
tion of the product quite as well as that which does not pass 
over into the revenues contains a portion of value, equal to 
C, equal to the value of the constant capital contained in 
it, which on its very face cannot be limited by the value of 
the revenue. On the one hand we have the practically ir- 
refutable fact, on the other hand the equally undeniable 
theoretical contradiction. This difficulty is most easily cir- 
cumvented by the assertion that the value of commodities 
contains another portion of value, differing only seemingly, 
from the one existing in the form of revenue only from the 
point of view of the individual capitalist. The phrase that 
a thing is revenue for one man and capital for another 
saves all further thought. But then it remains an insoluble 
riddle, how the old capital is to be replaced, when the value 
of the entire product can be consumed as revenue ; and how 

wages and profits. In page 508 he says: 'The value of a product, the value of 
productive service, .the value of the cost of production, are all, then, similar values, 
whenever things are left to their natural course.' Take a whole from a whole 
and nothing remains." (Ricardo, Principles, Chapter XXII, p. 512, Note.) — By 
the way, we shall see later that Ricardo nowhere refuted the false analysis made 
by Smith of the price of commodities, its reduction to the sum of the values of the 
revenues. He does not take notice of it, and assumes it to be correct to such an 
extent that he " abstracts " from the constant portion of the value of commodities. 
He also falls back now and then into the same conception. 



Analysis of Production. 981 

it is that the vakie of the product of each individual capital 
can be equal to the sum of the values of the three revenues 
plus C, the constant capital, whereas the sum of the values 
of the products of all capitals can be equal to the sum of the 
values of the three revenues plus zero. And the riddle must 
be solved by declaring that any analysis is incapable of find- 
ing out the simple elements of price, and must be satisfied 
with the faulty cycle and the progress into infinity. So 
that the thing which appears as constant capital may be re- 
solved into wages, profit and rent, whereas the values of the 
commodities, in which wages, profit and rent are material- 
ized, are determined in their turn by wages, profit and rent, 
and so forth to infinity. ■^^'^ 

The entirely false dogma to the effect that the value of 
commodities resolves itself in the last analysis into wages 
plus profits plus rent expresses itself in the assertion that 
the consumer must ultimately pay for the total value of 
the total product, or that the money circulation between pro- 
ducers and consumers must ultimately be equal to the money 
circulation between the producers themselves (Tooke). All 
these assertions are as false as the axiom upon which they 
are founded. 

The difficulties, Avhich lead to this false and prima facie 
absurd analysis, are briefiy the following: 

1) The first difficulty is that the fundamental relation- 
ship of constant and variable capital, hence also the nature 

'■^ " In every society the price of every commodity finally resolves itself into 
some one or the other, or all of those three parts (viz. wages, profits, rent). . . . 
A fourth part, it may perhaps be thought, is necessary for replacing the stock of 
the farmer or for compensating the wear and tear of his laboring cattle, and other 
instruments of husbandry. But it' must be considered that the price of any 
instrument of husbandry, such as a labouring horse, is itself made up of the 
same three parts: the rent of the land upon which he is reared, the labour of 
tending and rearing him, and the profits of the farmer, who advances both the 
rent of his land and the wages of his labour. Though the price of corn, therefore, 
may pay the price as well as the maintenance of the horse, the whole price still 
resolves itself either immediately or ultimately into the same three parts of rent, 
labour (meaning wages) and profit." (Adam Smith.) — We shall show later on, 
that Adam Smith himself felt the inconsistency and insufiiciency of this subter- 
fuge, for it is nothing but a subterfuge on his part to send us from Ponti^ts to 
Pilate, while he nowhere indicates the real investment of capital, in the case of 
which the price of the product resolves itself ultimately into these three parts, 
without any remainder and any further progression. 



982 Capitalist Production. 

of surplus-value, and with them the entire basis of the capi- 
talist mode of production, are not understood. The value 
of each portion of any product of capital contains a certain 
portion of value equal to the constant capital, another por- 
tion of value equal to the variable capital (converted into 
wages for the laborer), and another portion of value equal 
to surplus-value (which later on becomes profit and rent). 
How is it possible that the laborer with his wages, the capi- 
talist wdth his profit, the landlord with his rent, should be 
able to buy commodities, each one of Avhich contains not 
only one of these elements, but all three of them, and how is 
it possible that the sum of the values of wages, profit and 
rent, that is, of the three sources of revenue together, should 
be able to buy the commodities passing over into the total 
consumption of the recipients of these incomes, since these 
commodities contain another portion of value, namely con- 
stant capital, outside of the other portions of value? How 
can they buy a value of four with a value of three ? ^^^ 
We have given our analysis in Volume II, Part III. 

2) The second difiiculty is that the way, in which labor, 
by adding a new value, preserves old value in a new form 
without producing this old value anew, is not understood. 

3) The third difficulty is that the connections of the proc- 
ess of reproduction are not understood, as it presents itself, 
not from the point of view of individual capital, but from 
that of the total capital. The difficulty is to explain how it 

^'^ Proudhon, incapable of grasping this, exposes his incapableness in the formula: 
The laborer cannot buy back his own product, because the interest is contained in 
it, which is added to the purchase price. But how does Mr. Eugene Forcade 
teach him to know better? " If Proudhon's objection were true, it would strike 
not only the profits of capital, but would annihilate the possibility of all industry. 
If the laborer is compelled to pay 100 for each article for which he has received 
only 80, if his wages can buy back only the value which he has put into it, it 
would be as well to say that the laborer cannot buy back anything, that wages 
cannot pay for anything. In fact, there is always something more than the wages 
of the laborer contained in the purchase price, and always more than the profits 
of enterprise in the selling price, for instance, the price of the raw materials, 
which often goes to foreign countries. . . . Proudhon forgot about the con- 
tinual increase of the national capital ; he forgot that this increase refers to all 
laborers, the enterprising industrials as well as the hand laborers." (Revue des 
deux Mondes, 1848, tome, S4, p. 99.) Here we have the optimism of bourgeois thought- 
lessness in the form of wisdom corresponding to it. First Mr. Forcade believes 
that the laborer could not live, if he did not receive a higher value than that which 



Analysis of Production. 983 

is that the product, in which wages and surplus-value, in 
short the entire value produced by all the labor newly added 
during the current year, can be converted into money, can 
reproduce the constant part of its value and yet at the same 
time resolve itself into a value confined within the limits 
of the revenues; and how it is that the constant capital con- 
sumed in production can be replaced by the substance and 
value of new capital, although the total sum of the newly 
added labor is realized only in wages and surplus-value, and 
is fully represented by the sum of the values of both. It 
it here where the main difiiculty lies, in the analysis of re- 
production and of the proportions of its various component 
parts, both as concerns their material substance and the pro- 
portions of their value. 

4) To these difficulties is added another one, which is in- 
tensified still more as soon as the various component parts 
of the surplus-value appear in the form of revenues in- 
dependent of each other. This is the difficulty that the fixed 
marks of revenue and capital are interchanged and occupy 
different places, so that they seem to be merely relative de- 
terminations from the point of view of the individual capi- 
talist and to disappear as soon as the total process of pro- 
duction is viewed as a whole. For instance, the revenue of 
the laborers and capitalists of Class I, which produces con- 
stant capital, replaces the value and the substance of the con- 
stant capital of the capitalists of Class II, which produces 

he produces, whereas the capitalist mode of production, on the contrary, could 
not exist, if he received all the value which he really produces. In the second 
place he correctly generalizes the difficulty, which Proudhon expressed only under 
a more narrow point of view. The price of the commodities contains not only 
more than the wages, but also more than the profit, namely the constant portion 
of value. According to Proudhon's reasoning then, the capitalist could not buy 
back the commodities with his profit. And how does Forcade solve this riddle? 
By means of a meaningless phrase: The increase of capital. The continual 
increase of capital is supposed to manifest itself, among other things, also in the 
fact that the analysis of the price of commodities, which is impossible for the 
political economist in the case of a capital of loo, becomes superfluous in the case 
of a capital of 10,000. What would he say of a chemist, who, on being asked: 
How is it that the product of the soil contains more carbon than the soil? 
would answer: It comes from the continual increase of the product of the soil. 
The well-meaning good will to discover in the bourgeois world the best of all 
worlds takes the place, in vulgar economy, of any necessity to cultivate love of 
truth and scientific methods of research. 



984 Capitalist Production. 

articles of consumption. One may, therefore, get around 
the difficulty by means of the conception that the thing which 
is revenue for one is capital for another. This promotes 
the idea that these functions have nothing to do with the 
actual peculiarities of the component parts of value in the 
commodities. Furthermore : Commodities which are ulti- 
mately intended for the purpose of forming the substantial 
elements in the expenditure of revenue, in other words, 
articles of consumption, pass through various stages during 
the year, such as woolen yam, cloth. In the one stage they 
form a portion of the constant capital, in the other they are 
consumed individually, and thus pass wholly into the reve- 
nue. One may, therefore, imagine with Adam Smith that 
the constant capital is but seemingly an element of the value 
of commodities, which disappears in the total interrelation. 
Furthermore, a similar exchange takes place between vari- 
able capital and revenue. The laborer buys with his wages 
that portion of the commodities which form his revenue. In 
this way he creates at the same time for the capitalist the 
money form of the variable capital. Finally : One portion of 
the products, which form constant capital, is replaced in its 
natural form or by means of exchange by the producers of 
the constant capital themselves. The consumers have nothing 
to do with this process. When this is overlooked the im- 
pression is created that the revenue of the consumers replaces 
the entire product, even the constant portion of its value. 
5) Aside from the confusion created by the transforma- 
tion of the values into prices of production, another con- 
fusion is due to the transformation of surplus-value into dif- 
ferent, separate, independent forms of revenue traced back 
to different elements of production, into profit and rent. It 
is forgotten that the values of commodities are the basis, and 
that the division of the values of commodities into separate 
portions, and the further development of these portions of 
value into forms of revenue, their transmutation into rela- 
tions of the various owners of the different agencies in pro- 
duction to these parts of value, their distribution among these 
owners according to definite categories and titles, does not 



Analysis of Production. 985 

alter anything in the determination of value or in its law. 
I^either is the law of value changed bj the fact that the 
equalization of profit, that is, the distribution of the total 
value among the various capitals, and the obstacles, which 
private land to some extent puts in the way of this equaliza- 
tion (in absolute rent), makes the regulating average prices 
different from the individual values of the commodities. 
This again affects merely the addition of the surplus-value 
to the different prices of commodities, but does not abolish 
the surplus-value itself, nor the total value of commodities 
in its capacity as the source of these different constituents 
of value. 

This is the confusion, which we shall consider in our next 
chapter, and which is necessarily connected with the illusion 
that the value arises out of its own component parts. First 
the various component parts of value receive independent 
forms in the revenues, and in their capacity as revenues they 
are referred back to the particular substantial elements of 
production as their alleged sources instead of to the values 
of commodities, which are their real source. They are ac- 
tually referred back to those sources, not as components of 
value, but as revenues, as components of value falling to the 
share of definite classes of agents in production, the laborer, 
the capitalist and the landlord. But one might imagine 
that these parts of value, instead of arising out of the dis- 
tribution of the value of commodities, rather form it by 
their composition, and this leads to that nice and faulty 
circle, which makes the value of commodities arise out of 
the sum of the values of wages, profit, rent, and the value 
of wages, profit and rent, in their turn, is to be determined 
by the value of commodities, etc.^"^^ 

149 " -pjjg circulating capital invested in materials, raw products and machinery- 
is itself composed of merchandise, the necessary price of which is formed of the 
same elements ; so that, viewing the total merchandise in a certain country, it 
would mean using the same thing twice to count this portion of the circulating 
capital among the elements of the necessary price." (Storch, Cours d'Economie 
Politique, II, page 140.) — ■ By these elements of circulating capital Storch means 
the constant capital (the fixed capital is for him merely a different form of the 
circulating). " It is true that the wages of the laborer, the same as that portion 
of the profits of enterprise which stands for wages, provided we consider them as 
a part of the means of subsistence, also consist of merchandise bought at current 



986 Capitalist Production. 

Considering reproduction in its normal condition, only a 
part of the newly added labor is employed for production 
and thus for the reproduction of the constant capital. This 
is precisely the portion which replaces the constant capital 
used up in the production of articles of consumption, of 
substantial parts of the revenue. This is balanced by the 
fact that this constant portion does not require any ad- 
ditional labor on the part of Class II. Looking upon the 
total process of reproduction as a whole, in which this equal- 
ising exchange between Classes I and II is included, this 
constant capital is not a product of newly added labor, 
although the product of this labor could not be created with- 
out that capital. This constant capital, looking upon it from 
the point of view of substance, is exposed to certain ac- 
cidents and dangers in the process of reproduction. 
(Furthermore, considering it from the point of view of value, 
it may be depreciated through a change in the productive power 
of labor; but this refers only to the individual capitalist.) 
Accordingly a portion of the profit, of surplus-value and of 
the surplus-product, in which only newly added labor is 
represented, so far as its value is concerned, serves as an 
insurance fund. In this case it does not matter, whether 

prices and comprise likewise wages, interest on capital ground rent and profit of 
enterprise. . . . But this observation merely proves that it is impossible to 
resolve the necessary price into its simplest elements." (Ibidem note.) — In his 
Considerations sur la nature du revenu national (Paris, 1824). Storch realizes 
in his controversy with Say to what absurdity the false analysis of the value of 
commodities leads, when it resolves value into mere revenues. He points out the 
folly of such results, not from the point of view of the individual capitalist, but 
from that of a nation, but he does not go a step further himself in his analysis of the 
" prix necessaire," saying in his " Cours " that it is impossible to resolve it into its 
simplest elements and tracing it back into an endless progression. " It is evident 
that the value of the annual product is distributed partly among capital and partly 
among profits, and that each one of these parts of the value of the annual product 
buys regularly the products needed by a nation, as much for the purpose of pre- 
serving its capital as for the purpose of renewing its consumable fund (pages 
134, 135). . . . Can a self-employing peasant's family live in its barns or its 
stables, eat its seed and forage, clothe itself with its laboring cattle, dispense with 
its agricultural implements? According to the thesis of Mr. Say all these 
questions would- have to be answered in the affirmative (pages 135, 136) . . . 
If it is admitted that the revenue of a nation is equal to its gross product, that is, 
if no capital has to be deducted from it, then it must also be admitted that a na- 
tion can spend the entire value of its annual product unproductively without im- 
pairing its future income in the least (147). The products which constitute the 
capital of a nation cannot be consumed." (p. 150.) 



Analysis of Production. 987 

this insurance fund is managed bj separate insurance com- 
panies or not. This is the only part of the revenue which 
is neither consumed as such nor serves necessarily as a 
fund for accumulation. Whether it actually serves in the 
accumulation, or covers merely a shortage in reproduction, 
depends upon accident. This is also the only portion of the 
surplus-value and surplus-product, and thus of surplus-labor, 
which would continue to exist, outside of that portion which 
serves for accumulation and for the expansion of the process 
of reproduction, even after the abolition of the capitalist 
system. This, of course, is conditioned upon the premise 
that the portion regularly consumed by the direct producers 
does not remain limited to its present minimum. Out- 
side of the surplus-labor for those, who on account of 
age can not yet or no longer take part in production, all 
surplus labor for non-workers would disappear. If we 
transport ourselves back to the beginnings of society, we 
find no produced means of production, hence no constant 
capital, the value of which could pass into the product, and 
which would have to be replaced in its natural form out of 
the product in reproduction on the same scale, and to a 
degree measured by its value. But nature there supplies 
immediately the means of subsistence, which do not have to 
be produced. For this reason nature gives to the savage 
having but few wants the time, not to use non-existing means 
of production in new production, but to transform, outside 
of the labor required for the appropriation of naturally ex- 
isting means of production, other products of nature into 
means of production, bows, stone knives, boats, etc. This 
process among savages, considered merely from the side of 
its substance, corresponds to the reconversion of surplus- 
labor into new capital. In the process of accumulation, this 
conversion of the product of surplus labor into capital takes 
place continually; and the fact that all new capital arises 
out of profit, rent, or other forms of r'evenue, that is, out 
of surplus labor, leads to the mistaken idea that all value 
of commodities arises from some revenue. On the other 
hand, this reconversion of profit into capital rather shows 



988 Capitalist Production. 

on closer analysis, that the additional labor, which is always 
represented in the form of revenue, does not serve for the 
conser^^ation, or reproduction, of the old capital, but for the 
creation of new surplus capital to the extent -that it is not 
consumed as revenue. 

The whole difficulty arises from the fact that all newly 
added labor, to the extent that the value created by it is not 
dissolved into wages, appears as profit, that is, as a value 
which does not cost the capitalist anything and therefore 
cannot make good some capital advanced by him. This value 
rather exists in the form of available additional wealth, or, 
from the point of view of the individual capitalist, in the 
foiTn of his revenue. But this newly created value can just 
as well be consumed productively as individually, equally 
well as capital and as revenue. In view of its natural form, 
some of it must be productively consumed. It is, therefore, 
evident that the annually added labor creates capital as well 
as revenue ; this becomes evident in the process of accumula- 
tion. That portion of the labor-power, which is employed 
in the creation of new capital (analagous to that portion of 
the working day of a savage employed, not for the appropria- 
tion of subsistence, but for the manufacture of tools by which 
to appropriate subsistence), becomes evident in the fact that 
the entire product of surplus labor presents itself at first in 
the shape of profit ; this use of it has indeed nothing to do 
with this surplus-product itself, but refers merely to the 
private relation of the capitalist to the surplus-value pocketed 
by him. In fact, the surplus-value created by the capitalist 
is divided into revenue and capital, that is, into articles of 
consumption and additional means of production. But the 
old constant capital, which was handed over from last year 
(outside of the portion that was injured and to that extent 
destroyed, in short, the old constant capital that does not 
have to be reproduced, and so far as there is any break in 
the process of reproduction, the insurance covers that), so 
far as its value is concerned, is not reproduced by the newly 
added labor. 

We see, furthermore, that a portion of the newly added 



Analysis of Production. 989 

labor is continually absorbed in the reproduction and re- 
placement of consumed constant capital, although this newly 
added labor resolves itself altogether in revenues, in wages, 
profit and rent. But it is always overlooked, 1) that one 
portion of the value of this new labor is not a product of 
this new labor, but previously existing and consumed con- 
stant capital; that the portion of the product, in which this 
part of value presents itself, cannot be converted into reve- 
nue, but replaces the means of production of this constant 
capital in their natural form. 2) It is overlooked that the 
portion of value, in which this newly added labor is actually 
represented, is not consumed as revenue in its natural form, 
but replaces the constant capital in another sphere, where 
it is moulded into a natural -form, in which it may be con- 
sumed as revenue, but which in its turn is not wholly a prod- 
uct of newly added labor. 

To the extent that reproduction takes place on the same 
scale, every consumed element of the constant capital must 
be replaced by a new natural specimen of the same kind, 
if not in quantity and form, then at least in natural ef- 
fectiveness. If the productive power of labor remains the 
same, then this natural replacement implies the reproduction 
of the same value, which the constant capital had in its old 
form. But if the productive power of labor is increased, 
so that the same substantial elements may be reproduced 
with less labor, then a smaller portion of value of this prod- 
uct can completely replace the constant part in its natural 
shape. The surplus may then be employed in the formation 
of additional capital, or a larger portion of the product may 
be given the form of articles of consumption, or the surplus 
labor may be reduced. On the other hand, if the produc- 
tive power of labor decreases, then a larger portion of the 
product must be used for the replacement of the old capital; 
the surplus product decreases. 

The reconversion of profit, or of any form of surplus- 
value, into capital shows — without considering the historic- 
ally defined econoniic form and looking upon it merely a& 
a simple formation of new means of production — that the 



99C» Capitalist Production. 

condition still continues, in which the laborer perforins sur- 
plus labor for the purpose of producing means of produc- 
tion, outside of the labor by Avhich he acquires his means of 
subsistence. Transformation of profit into capital signifies 
merely the employment of a portion of the surplus labor 
in the formation of new, additional, means of production. 
That this takes place in the shape of a conversion of profit 
into capital, signifies merely that not the laborer, but the 
capitalist has control of the surplus labor. That this sur- 
plus labor must first pass though a stage, in which it ap- 
pears as revenue (whereas in the case of a savage it appears 
as surplus labor aiming directly at the manufacture of means 
of production), means simply that this labor, or its prod- 
uct, is appropriated by the non-laborer. But what is actually 
converted into capital, is not the profit as such. Transfor- 
mation of surplus-value into capital signifies merely that the 
surplus-value and the surplus-product are not consumed in- 
dividually as revenue of the capitalist. What is actually so 
converted is the value, the materialized labor, that is, the 
product in which this value directly presents itself, or for 
which it is exchanged after having been converted into 
money. Even when the profit is reconverted into capital, 
it is not this definite form of surplus-value, not the profit, 
which is the source of the new capital. The surplus-value 
is merely changed from one form into another. But it is 
not this change of form which gives it the character of capi- 
tal. It is the commodity and its value, which now perform 
the function of capital. But that the value of the com- 
modity is not paid for — and only by this means does it 
become surplus-value — is quite immaterial for the material- 
ization of labor, for value itself. 

The misunderstanding expresses itself in various forms. 
For instance, it is said that the commodities, of which the 
constant capital consists, also contain elements of wages, 
profit and rent. Or, that the thing, which is revenue for 
the one, is capital for some one else, and that these are but 
subjective relations. Thus the yarn of the spinner contains 
a portion of value representing profit for him. If the weaver 



Analysis of Production. 991 

buys the yarn, he realizes the profit of the spinner, but for 
himself this yam is merely a part of his constant capital. 

Aside from the remarks made on this score concerning the 
relations between revenue and capital, we add the following 
observations: The value which passes with the yarn as a 
constituting element into the capital of the weaver, is the 
value of the yarn. In what manner the parts of this value 
have resolved themselves for the spinner into capital and 
revenue, or, in other words, into paid and unpaid labor, is 
immaterial for the determination of the value of the com- 
modity itself (aside from modifications by the average 
profit). Back of this lurks the idea that the profit, or the 
surplus-value in general, is a surplus above the value of the 
commodity, which can be made only by raising the price, by 
mutual cheating, by making a gain through sale. When the 
price of production is paid, or the value of the commodity, 
this pays, naturally, also for those portions of the value of 
commodities, which present themselves to the seller in the 
shape of revenue. Of course, we are not speaking of mo- 
nopoly prices here. 

In the second place, it is quite correct to say that the 
component parts of a commodity which make up the con- 
stant capital, like any other value of commodities, may be 
reduced to parts of value, which resolve themselves for the 
producers and the OAvners of the means of production into 
wages, profit and rent. This is merely a capitalist form of 
expression for the fact that all value of commodities is but 
the measure of the socially necessary labor contained in the 
commodities. But we have already shown in Volume I, 
that this does not prevent a separation of the produced com- 
modities of any capital into separate parts, of which the one 
represents exclusively the constant portion of capital, another 
the variable portion of capital, and a third one only surplus- 
value. 

Storch expresses the opinion of many others, when he 
says : " The salable products, which make up the national 
revenue, must be considered in political economy in two 
ways. They must be considered in their relations to indi- 



992 " Capitalist Production. 

viduals as values and in their relations to the nation as goods, 
For the revenue of a nation is not apjDreciated like that of 
an individual, by its value, but bj its utility or by the wants 
which it can satisfy." (Co7isiderations sur le revenu nOr 
tional, p. 19.) 

In the first place, it is a false abstraction to regard a 
nation, whose mode of production is based upon value and 
otherwise capitalistically organized, as an aggregate body 
working merely for the satisfaction of the national wants. 

In the second place, after the abolition of the capitalist 
mode of production, but with social production still in vogue, 
the determination of value continues to prevail in such a way 
that the regulation of the labor time and the distribution 
of the social labor among the various groups of production, 
also the keeping of accounts in connection with this, become 
more essential than ever 



CHAPTER L. 

THE SEMBLANCE OF COMPETITION. 

We have shown, that the value of commodities, or the price 
of production regulated by their total value, resolves itself 
into : 

1) One portion of value replacing constant capital, or 
representing past labor, used up in the form of means of pro- 
duction in the making of the commodity. This, in brief, 
is the value, or price, which these means of production car- 
ried into the process of production of the commodities. We 
never speak of individual commodities in this case, but of 
commodity-capital, that is, of that form, in which the prod- 
uct of capital during a certain period of time, say of one 
year, presents itself, and of which the individual commodity 
forms one element, which, moreover, so far as its value is 
concerned, resolves itself into the same analogous constituents. 

2) One portion of value representing variable capital. 



The Semblance of Competition. 993 

wliich measures the income of the laborer and converts itself 
into wages for him. The laborer has produced these wages 
in this variable portion of value. This, briefly, is that por- 
tion of value, which represents the paid portion of the new 
labor added to the above constant portion in the production 
of commodities. 

3) Surplus- Value, which is that portion of the value of the 
produced commodities, in which the unpaid, or surplus la- 
bor is incorporated. This last portion of the value in its 
turn assumes the independent forms, Avhich are at the same 
time forms of revenue, namely the forms of profit on capi- 
tal (interest on capital as such and profit of enterprise on 
capital in productive work) and ground-rent, which is 
claimed by the owner of the land participating in the proc- 
ess of production. The parts mentioned under 2) and 3), 
that is, that portion of value, which always assumes the reve- 
nue forms of wages (but only after having first gone through 
the form of variable capital), profit and rent, is dis- 
tinguished from the constant portion mentioned under 1) 
by the fact that in it that entire portion of value is dis- 
solved, in which the additional labor added to that constant 
part, to the means of production of the commodities, is ma- 
terialized. ISTow, if we leave aside the constant portion, 
then it is correct to say that the value of a commodity, to the 
extent that it represents newly added labor, continually re- 
solves itself into three parts, which form three forms of reve- 
nue, namely wages, profit and rent,^^*^ in which the respective 

15" In separating the value added to the constant portion o£ value into wages, 
profit and ground rent, it is a matter of course that these are portions of value. 
One may, indeed conceive them as existing in the direct product created by 
laborers and capitalists in some particular sphere of production, for instance, yarn 
pioduced in a spinnery. But in fact they do not materialize in this product any 
more or any less than in any other commodity, in any other part of the material 
wealth having the same value. And in practice wages are paid in money, that is, 
in the pure form of value; likewise interest and rent. For the capitalist, the 
transformation of his product into the pure expression of value is indeed very 
important; in the distribution itself its existence is already assumed. Whether 
these values are reconverted into the same product, out of whose production they 
arose, whether the laborer buys back a part of the product directly produced by 
himself or the product of some other labor of a different kind, has nothing to do 
with the matter itself. Mr. Rodbertus quite unnecessarily goes into a passion 
about this. 

3K 



994 Capitalist Production 

magnitudes of value, that is the aliquot portions, which they 
constitute in the total value, a:re determined by various pecul- 
iar laws, which we have analysed previously. But on the 
other hand, it would be a mistake to say that the value of 
wages, the rate of profit, and the rate of rent form inde- 
pendent constituent elements of value, whose composition 
gives rise to the value of commodities, leaving aside the con- 
stant part; in other words, it would be a mistake to say that 
they are constituent elements of the value of commodities, or 
of the price of production. ^^^ 

The difference is easily seen. 

Take it that the value of the product of a capital of 500 
is equal to 400 c -f 100 v -f 150 s = 650 ; let the 150 s 
be divided into 75 profit -|- 75 rent. We will also assume, 
in order to forestall useless difiiculties, that this is a capital 
of average composition, so that its price of production, and 
its value coincide ; this coincidence always takes place, when- 
ever the product of such an individual capital may be con- 
sidered as the product of some portion of the total capital 
corresponding to the same magnitude. 

Here the wages, measured by the variable capital, form 
20% of the advanced capital; the surplus-value, calculated 
on the total capital, forms 30%, namely 15% profit and 
15% rent. The entire portion of value of the commodity 
representing the newly added labor is equal to 100 v -|- 
150 s =,250. Its magnitude does not depend upon its di- 
vision into wages, profit and rent. We see by the propor- 
tion of these parts to each other that a labor-power, which 
is paid with 100 in money, say 100 pounds sterling, has 
supplied a quantity of labor represented by money to the 
amount of 250 pounds sterling. We see from this that the 
laborer performed one and a half times as much surplus 
labor as he did labor for himself. If the working day con- 
tained 10 hours, then he worked 4 hours for himself and 6 

151 " It will be sufficient to remark that the same general rule, which regulates 
the value of raw produce and manufactured commodities, is applicable also to the 
metals; their value depending not on the rate of profits, nor on the rate of wages, 
nor on the rent paid for mines, hut on the total quantity of labor necessary to ob- 
tain the metal and to bring it to market." (Ricardo Principles, Chapter III, p. 77.) 



** The Semblance, of Competition. 995 

hours for the capitalist. Therefore the labor of the laborers 
paid with 100 pounds sterling is expressed in money to the 
amount of 250 pounds sterling. Outside of this value of 
250 pounds sterling there is nothing to divide between la- 
borer and capitalist, between capitalist and landlord. It is 
the total value newly added to the value of 400, which is the 
value of the means of production. The value of 250 thus 
produced and determined by the quantity of labor material- 
ized by it in the commodities forms the limit of the divi- 
dend, which the laborer, the capitalist and the landlord will 
be able to draw out of this value in the shape of the revenues, 
wages, profit and rent. 

Take it that a capital of the same organic composition, 
that is, of the same proportion between the employed living 
labor-power and the constant capital set in motion by it, 
should be compelled to pay 150 pounds sterling instead of 
100 pounds sterling for the same labor-power which sets in 
motion the constant capital of 400. And let us further as- 
sume that profit and rent should share the surplus-value in 
a different proportion. As we have assumed that the vari- 
able capital of 150 pounds sterling sets the same quantity of 
labor in motion as the variable capital of 100 did, the newly 
added value would be 250 as before, and the total value of 
the product would be 650, also as before. But the formula 
would then read: 400 c + 150 v + 100 s, and these 100 s 
would be divided, say, into 45 profit and 55 rent. The pro- 
portioU;, in which the newly produced total value would now 
be divided among wages, profit and rent, would now be very 
different. The magnitude of the advanced total capital would 
also be very different, although it would set only the same 
total quantity of labor in motion. The wages would amount 
to 2Y^%, the profit to 83^%, and the rent to 10% of the ad- 
vanced capital. The total surplus-value would, therefore, 
amount to a little over 18%. 

In consequence of the raise in wages the unpaid portion 
of the total labor would be changed and with it the surplus- 
value. If the working day contained 10 hours, the laborer 
would work 6 hours for himself and 4 hours for the capital- 



996 Capitalist Production. 

ist. The proportion of profit and rent wonld also be changed, 
the reduced surplus-vahie would be divided in a different pro- 
portion between the capitalist and the landlord. Finally, 
since the value of the constant capital would have remained 
the same, while the value of the advanced variable capital 
would have risen, the reduced surplus-value would express 
itself in a still more reduced rate of gross profit, by which we 
mean here the proportion between the total surplus-value and 
the advanced total capital. 

The change in the value of wages, In the rate of profit, and 
in the rate of rent, whatever might be the effect of the laws 
regulating the proportion of these parts, could move only 
within the limits set by the newly produced value of com- 
modities amounting to 250. An exception could take place 
only, if rent should rest upon a monopoly price. This would 
not alter the law itself, but merely complicate its analysis. 
Tor if we consider only the product itself in this case, then 
merely the division of the surplus-value would be different. 
But if we consider its relative value as compared to other 
commodities, then we should find no other difference but that 
a portion of the surplus-value had been transferred from 
them to this particular commodity. 

Let us sum up : 



Value of Product 


New Value 


Rate of 

Surplus-Value 


Rate of 
Gross- Profit 


First Case : 400 c + 100 v + 150 s = 650 
Second Case : 400 c + 150 v + 100 s = 650 


250 
250 


150 % 

66 1/3% 


30 % 
18 2/11% 



In the first place, the surplus-value falls by one-third from 
its former figure, it falls from 150 to 100. The rate of profit 
falls by a little more than one-third, from 30% to 18%, be- 
cause the reduced surplus-value must be calculated on an in- 
creased advance of total capital. But it does not fall in the 
same proportion as the rate of surplus-value. ' This last falls 
from -Irflto^l-, that is, from 150% to 66|%, whereas the rate 
of profit falls only from^f| to i f^or from dO% to 18 j\%. 
The rate of profit, then, falls proportionately more than the 
mass of surplus-value, but less than the rate of surplus-value. 
We find, furthermore, that the values as well as the masses 
of products remain the same, so long as the same quantity of 



The Semblance of Competition. 997 

labor is employed, although the advanced capital has increased 
bj the augmentation of its variable portion. This increase 
of the advanced capital would indeed make itself felt for a 
capitalist who would start out in business. But looking upon 
reproduction as a whole, the augmentation of the variable 
capital means merely that a larger portion of the new value 
added by newly performed labor is converted into wages, and 
thus at first into variable capital instead of into surplus-value 
and surplus products. The value of the product thus remains 
the same, because it is bounded on the one hand by the value 
of the constant capital, 400, and on the other hand by the 
figure 250, in which the newly added labor is represented. 
Both of these values remain unaltered. The product would 
represent the same amount of use-value in the same quantity 
of exchange-value, to the extent that it would return into the 
constant capital, so that the same mass of elements of con- 
stant capital would retain the same value. The matter would 
be diiferent, if the wages should rise, not because the laborer 
would receive a larger share of his own labor, but if he should 
receive a larger portion of his own labor, because the produc- 
tivity of labor would have decreased. In this case, the total 
value, in which this same labor, paid and unpaid, would be 
incorporated, would remain the same. But the mass of prod- 
ucts, in which this quantity of labor would be incorporated, 
would be the same, so that the price of each aliquot portion 
of this product would rise, because each portion would con- 
tain more labor. The increased wages of 150 would not rep- 
resent any more labor than the wages of 100 did before ; the 
reduced surplus-value of 100 would represent merely two- 
thirds of the product which it did previously, only 66|% 
of the mass of use-values, which were formerly represented 
by 100. In this case the constant capital would also become 
dearer to the extent that this product would go back into it. 
But this would not be the result of the increase in wages. 
This increase in wages would rather be a result of the in- 
crease in the price of commodities and a result of the dimin- 
ished productivity of the same quantity of labor. Here the 
impression is given that the raise in wages made the product 



998 Capitalist Production. 

dearer; however, this raise is not the cause, but rather a re- 
sult of a change in the value of the commodities, due to the 
decreased productivity of labor. 

On the other hand, so long as all other circumstances re- 
main the same, so long as the same quantity of employed la- 
bor is represented by 250, and the value of the means of pro- 
duction handled by it should then rise or fall, then the value 
of the same quantity of products would rise or fall by the 
same magnitude. 450 c + 100 v + 150 s make the value 
of the product equal to 700. But 350 c + 100 v + 150 s 
would make the value of the same quantity of products 
only equal to 600, as against a former 650. Hence, if the 
advanced capital should increase or decrease, while it sets the 
same quantity of labor in motion, the value of its product 
would rise or fall, other circumstances remaining the same, 
if the increase or decrease of the advanced capital is due to 
a change in the value of the constant portion of capital. On 
the other hand, the value of the product remains unchanged, 
if the increase or decrease of the advanced capital is caused 
by a change in the value of the variable portion of capital, 
provided that the productivity of labor remains the same. In 
the case of the constant capital, the increase or decrease of its 
value is not balanced by any opposite movement. But in the 
case of the variable capital, so long as the productivity of la- 
bor remains the same, an increase or decrease of its value is 
balanced by the opposite movement on the part of the sur- 
plus-value, so that the value of the variable capital plus the 
surplus-value, that is, the new value added by new labor to 
the means of production and newly incorporated in the prod- 
uct, remains the same. 

But if the increase or decrease of the value of the vari- 
able capital is due to a rise or fall in the price of commodi- 
ties, that is, to an increase or decrease of the productivity 
of the labor employed by this investment of capital, then the 
value of the product is affected. Only, the rise or fall of 
wages in this case is not a cause, but an effect. 

On the other hand, if the constant capital in the above 
illustration should remain at 400 c, and if the change from 



The Semblance of Competition. 999 

100 V + 150 s to 150 V -|- 100 s, that is, an increase of the 
variable capital, should be due to a decrease in the produc- 
tivity of labor, not in this same particular line of industry, 
say in cotton spinning, but perhaps in agriculture, so that 
it would be a result of a rise in the price of foodstuffs, then 
the value of the product would remain unchanged. The 
value of 650 would still be represented by the same quantity 
of cotton yarn. 

The foregoing leads furthermore to the following conclu- 
sions: If a decrease in the expenditure of constant capital 
is due to economies, etc., in such lines of production as sup- 
ply agriculture with their products, then this, like a direct 
improvement in the productivity of the employed labor it- 
self, may lead to a reduction of wages, because it would lead 
to a cheapening of the subsistence of the laborer, and this 
would imply an increase of the surplus- value ; so that the 
rate of profit in this case would grow for two reasons, namely 
on the one hand, because the value of the constant capital 
would decrease," and on the other hand, because the surplus- 
value would increase. In our analysis of the conversion of 
surplus-value into profit we assumed that the wages would 
not fall, but remain constant, because there we had to inves- 
tigate the fluctuations of the rate of profit, independent of 
the changes in the rate of surplus-value. Moreover, the laws 
which we developed in that case are general ones, and apply 
also to investments of capital, the products of which do not 
pass over into the consumption of the laborer, and in that 
case changes in the value of the product are without influence 
upon the wages. 



We know, then, that the separation and distribution of 
the new value added by new labor annually to the means of 
production, or to the constant part of capital, among the 
various forms of revenue, namely wages, profit and rent, do 
not alter the limits of this value itself, do not alter the sum 
of value to be so distributed ; neither can a change in the 
proportions of these different parts alter their sum, which 



looo Capitalist Production. 

makes up this given magnitude of value. A given figure of 
100 always remains tlie same, whether it is divided into 50 
+ 50, or into 20 + 70 + 10, or into 40 + 30 + 30. That 
portion of the value of the product, which is divided into 
these revenues, is determined, like the constant portion of 
the value of capital, by the value of commodities, that is, by the 
quantity of the labor incorporated in them from case to case. 
In the first place, then, the quantity of value of the commodi- 
ties to be distributed among wages, profit and rent is given; 
in other words, the absolute limit of the sum of the portions 
of value of these commodities. In the second place, as con- 
cerns the individual categories themselves, their average and 
regulating limits are likewise given. The wages form the 
basis in this limitation. The wages are regulated on the one 
side by a natural law; their minimum is determined by the 
physical minimum required by the laborer for the conserva- 
tion of his labor-power and for its reproduction; this means 
a minimum quantity of commodities. The value of these 
commodities is determined by the labor time required for 
their reproduction ; it is determined by that portion of the 
new labor added to the means of production, or by that por- 
tion of each working day, which the laborer must have for 
the production and reproduction of an equivalent for the 
value of these necessary means of subsistence. For instance, 
if his average daily food requirements have the value of six 
hours of average labor, then he must work on an average 
six hours per day for himself. The actual value of his labor- 
power differs from this physical minimum ; it differs accord- 
ing to climate and condition of social development ; it de- 
pends not merely upon the physical, but also upon the histor- 
ically developed social needs, which become second nature. 
But in every country and at any given period this regulating 
average wage is a given magnitude. The value of all other 
revenues thus has its limit. It is always equal to the value, . 
in which the total working day (which coincides in the pres- 
ent case with the average working day, since it comprises the 
total quantity of labor set in motion by the total social cap- 
ital) is incorporated, minus that portion of this working day, 



The Semblance of Competition. looi 

which is incorporated in wages. Its limit is therefore de- 
termined by the limit of that value, in which the unpaid la- 
bor is expressed, that is, bj the quantity of this unpaid labor. 
While that portion of the working day, which is required by 
the laborer for the reproduction of the value of his wages, 
finds its ultimate limit in the physical minimum of wag^s, 
the other portion of the working day, in which surplus labor 
is incorporated, and with it that portion of value which 
stands for surplus-value, finds its limit in the physical max- 
imum of the working day, that is, in the total quantity of 
daily labor time, during which the laborer can be active al- 
together and still preserve and reproduce his labor-power. 
As we are here concerned in the distribution of that value, 
which represents the total labor newly added per year, the 
working day may here be regarded as a constant magnitude, 
and is taken for granted as such, no matter how much or 
how little it may differ from its physical maximum. The ab- 
solute limit of that portion of value, which forms surplus- 
value, and which resolves itself into profit and ground-rent, 
is thus given. It is determined by the excess of the unpaid 
portion of the working day over its paid portion, which 
means by that portion of the value of the total product, in 
which this surplus labor is realized. If we call the surplus- 
value thus limited and calculated on the advanced total cap- 
ital the profit, as I have done, then this profit, so far as its 
absolute magnitude is concerned, is equal to the surplus-value 
and, therefore, determined in its boundaries by the same 
laws as it. On the other hand, the level of the rate of profit 
is likewise a magnitude inclosed within certain limits by the 
value of commodities. This rate is the proportion of the 
total surplus-value to the total social capital advanced in pro- 
duction. If this capital is equal to 500 (say millions) and 
the surplus-value equal to 100, then 20% form the absolute 
limit of the rate of profit. The distribution of the social 
profit at this rate among the various capitals invested in the 
different spheres of production creates prices of production, 
which swerve from the values of commodities, and these 
prices of production are the real regulating average market 



I002 Capitalist Production. 

prices. But this deviation of prices of production from val- 
ues abolishes neither the determination of prices by values 
nor the lawful limits of profit. Instead of the value of a 
commodity being equal to the capital consumed in it plus 
the surplus-value contained in it, its price of production is 
then equal to the capital, k, consumed in it plus the surplus- 
value falling to its share as a result of the average rate of 
profit, for instance 20% of the capital advanced in its pro- 
duction, counting both the consumed and the merely em- 
ployed capital. But this addition of 20% is itself deter- 
mined by the surplus-value created by the total social capital, 
and by its proportion to the value of this capital; and for 
this reason it is 20% and not 10% or 100%. The trans- 
formation of the values into prices of production, then, does 
not abolish the limits of profit, but merely alters its distribu- 
tion among the various particular capitals, which make up 
the total social capital, distributes it uniformly among them 
in the proportion in which they form parts of the value of 
this total capital. The market prices fall below or rise 
above these regulating prices of production, but these fluc- 
tuations balance each other. If one studies price lists dur- 
ing a certain long period, and if one subtracts the cases, in 
which the real value of commodities is altered by a change 
in the productivity of labor, and likewise the cases, in which 
the process of production has been previously disturbed by 
natural or social accidents, one will be surprised, in the first 
place, by the relatively narrow limits of the fluctuations, 
and, in the second place, by the regularity of their mutual 
compensation. The same domination of the regulating aver- 
ages will be found here, which Quetelet pointed out in the 
case of social phenomena. If the equalization of the values 
of commodities into prices of production does not meet any 
obstacles, then the rent resolves itself into differential rent, 
that is, it is limited to the equalization of the surplus-profits, 
which would be given to some of the capitalists by the regu- 
lating prices of production, but which are then appropriated 
by the landlords. Here, then, the rent has its definite limit 
of value in the fluctuations of the individual rates of profit, 



The Semblance of Convpetition. 1003 

which are caused by the regulation of the jDrices of produc- 
tion through the general rate of profit. If private owner- 
ship of land places obstacles in the way of the equalization 
of the values of commodities into prices of production, and 
appropriates absolute rent, then this absolute rent is limited 
by the excess of the value of tlie products of the soil over 
their prices of production, that is, by the excess of the sur- 
plus-value in them over the rate of profit assigned to the 
capitals by the average rate of profit. This difference then 
forms the limit of the rent, which is always but a certain por- 
tion of surplus-value produced and existing in the commodi- 
ties. - 

Finally, if the equalization of the surplus-value into aver- 
age profit meets with obstacles in the various spheres of pro- 
duction in the shape of artificial or natural monopolies, par- 
ticularly of monopoly in land, so that a monopoly price 
w^ould be possible, which would rise above the price of pro- 
duction and above the value of the commodities affected by 
such a monopoly, still the limits imposed by the value of 
commodities would not be abolished thereby. The monopoly 
price of certain commodities would merely transfer a por- 
tion of the profit of the other producers of commodities to 
the commodities with a monopoly price. A local disturb- 
ance in the distribution of the surplus-value among the vari- 
ous spheres of production would take place indirectly, but 
they would leave the boundaries of the surplus-value itself 
unaltered. If a commodity with a monopoly price should 
enter into the necessary consumption of the laborer, it would 
increase the wages and thereby reduce the surplus-value, if 
the laborer would receive the value of his labor-power, the 
same as before. But such a commodity might also depress 
wages below the value of labor-power, of course only to the 
extent that wages would be higher than the physical mini- 
mum of subsistence. In this case the monopoly price would 
be paid by a deduction from the real wages (that is, from 
the quantity of use-values received by the laborer for the 
same quantity of labor) and from the profit of the other cap- 
italists. The limits, within which the monopoly price would 



I004 Capitalist Production. 

affect the normal regulation of the prices of commodities, 
would be accurately fixed and could be closely calculated. 

Just as the division of the newly added value of commodi- 
ties into necessary and surplus labor, wages and surplus- 
value, and its general division between revenues, finds its 
given and regulating limits, so the division of the surplus- 
value itself into profit and ground-rent finds its limit in the 
laws regulating the equalization of the rate of profit. In 
the division into interest and profits of enterprise the aver- 
age profit itself forms the limit for both of them. It fur- 
nishes the given magnitude of value, which they may divide 
among themselves and which is the only one that they can 
so divide. The definite proportion of this division is here 
accidental, that is, it is determined exclusively by conditions 
of competition. Whereas in other cases the balancing of sup- 
ply and demand implies the cessation of the deviation of mar- 
ket prices from their regulating average prices, that is, the ces- 
sation of the infiuence of competition, it is here the only de- 
terminant. But why ? Because the same factor in produc- 
tion, the capital, has to divide its share of the surplus-value 
between two owners of the same factor in production. But 
the fact that no definite, lawful, limit for the division of the 
average profit is found, does not do away with its limit as 
a part of the value of commodities, any more than the fact 
that two partners in a certain business, being under the in- 
fluence of different circumstances, divide their profit un- 
equally, affects the limits of this profit in any way. 

Hence, although that portion of the value of commodities, 
in which the value of the new labor added to the means of 
production is incorporated, is divided into different parts, 
which assume independent forms as revenues, this is no rea- 
son why wages, profit and ground-rent should be considered 
as constituting elements, whose addition, or sum, would be 
the source of the regulating price of commodities (natural 
price, prix necessaire) ; it is no reason to think that not the 
value of commodities, after the subtraction of the constant 
portion of value, is the original unit separated into these 
three parts, but rather the price of each one of these three 



The Semblance of Competition. lOOS 

parts is independently determined, and that the price of com- 
modities is then formed bv an addition of these three inde- 
pendent magnitudes. In reality the value of commodities 
is the magnitude which exists first, and it comprises the sum 
of the total values of wages, profit and rent, whatever may 
be tlieir relative magnitudes. In the wrong conception, 
wages, profit and rent are three independent magnitudes of 
value, whose total magnitude is supposed to produce the mag- 
nitude of the value of a commodity, to limit and to deter- 
mine it. 

In the first place it is evident that, if wages, profit and 
rent constitute the price of commodities, this would apply as 
much to the constant portion of the value of commodities as 
to the other portion, in which variable capital and surplus- 
value are incorporated. This constant portion may here be 
left entirely out of consideration, since the value of the com- 
modities of which it is made up would likewise resolve it- 
self into wages, profit and rent. We have already shown 
that this conception denies the existence of such a constant 
portion of value. 

It is furthermore evident that all meaning of value is here 
eliminated. Only the conception of price remains, in the 
sense that a certain amount of money is paid to the owners 
of labor-power, capital and land. But what is money ? 
Money is not a thing, but a definite form of value, hence it 
is again conditioned upon value. Let us say, then, that a 
definite amount of gold or silver is paid for those elements 
of production, or that they are equalled in our minds to this 
amount. But gold and silver (and the enlightened econo- 
mist is proud of this understanding) are themselves com- 
modities, like all others. The price of gold and silver is 
therefore likewise determined by wages, profit and rent. 
Hence we cannot determine what wages, profit and rent are, 
by making them equal to a certain amount of gold or silver, 
for the value of this gold and silver, by which they are sup- 
posed to be estimated as equivalents, is precisely supposed 
.to be determined by them, independently of gold and silver, 
that is, independently of the value of any commodity, for 



ioo6 Capitalist Production. 

this value is supposed to be the product of those three. To 
say that the value of wages, profit and rent consist in their 
being equivalent to a certain quantity of gold and silver, 
would merely be the same as saying that they are equal to a 
certain quantity of wages, profit and rent. 

Take wages first. For it is necessary to make labor the 
point of departure, even in this view of the matter. How, 
then, is the regulating price of wages determined, the price 
around which its market prices oscillate ? 

Let us reply that it is determined by the demand and sup- 
ply of labor-power. But what sort of a demand is this? It 
is a demand made by capital. The demand for labor is 
therefore at the same time a supply of capital. In order to 
speak of a supply of capital, we should know above all what 
capital is. What is capital made of? If we select its sim- 
plest forms, it consists of money and commodities. But 
money is merely a form of commodities. Capital, then, 
consists of commodities. But the value of commodities, ac- 
cording to our assumption, is first determined by the price of 
the labor producing them, by wages. The existence of wages 
is here a prerequisite and is considered as a constituting ele- 
ment of the price of commodities. ISTow this price is to be 
determined by the proportion of the supplied labor to cap- 
ital. The price of the capital itself is equal to the price of 
the commodities of which it is composed. The demand of 
capital for labor is equal to the supply of capital. And the 
supply of capital is equal to the supply of a quantity of com- 
modities of a given price, and this price is regulated in the 
first place by the price of labor, and the price of labor in 
its turn is equal to that portion of the price of commodities, 
which makes up the variable capital, which is transferred to 
the laborer in exchange for his labor; and the price of the 
commodities, of which this variable capital is composed, is 
in its turn primarily determined by the price of labor ; for 
it is determined by the prices of wages, profit and rent. In 
order to determine wages, we cannot, therefore, assume the 
previous existence of capital, for the value of the capital is 
itself determined in part by wages. 



The Semhlmice of Competition. 1007 

Besides, the dragging of competition into this problem 
does not help any. Competition makes the market prices of 
labor rise and fall. But suppose that the demand and sup- 
ply of labor are balanced. What determines wages in that 
case ? Competition. But we have just assumed that com- 
petition ceases to act as a determinant, that it abolishes its 
effects by the equilibrium of its two opposing forces. We 
are precisely trying to find the natural price of wages, that 
is, the price of labor not regulated by competition, but which, 
on the contrary, regulates it. 

ISTothing remains but to determine the necessary price of 
labor by the necessary subsistence of the laborer. But these 
articles of food are commodities, which have a price. The 
price of labor is therefore determined by the price of the 
necessary means of existence, and the price of the means of 
existence, like that of all other commodities, is determined 
primarily by the price of labor. Therefore the price of la- 
bor determined by the price of the means of existence is de- 
termined by the price of labor. The price of labor is deter- 
mined by itself. In other words, we do not know by what 
the price of labor is determined. Labor in this case has any 
price at all, because it is considered as a commodity. In 
order, therefore, to speak of the price of labor, we must know 
what price itself means. But what price itself is, we do not 
learn in this way at all. 

But let us assume, that the necessary price of labor had 
been determined in this agreeable manner. Then how is the 
average profit determined, the profit of every capital in nor- 
mal conditions, which forms the second element of the price 
of commodities ? The average profit must be determined by 
an average rate of profit ; how is this rate determined ? By 
the competition between the capitalists ? But this competi- 
tion itself is conditioned upon the existence of profit. It pre- 
supposes the existence of different rates of profit, and thus 
of different profits, either in the same, or in different spheres 
of production. Competition can influence the rate of profit 
only to the extent that it affects the prices of commodities. 
Competition can merely make the producers within the same 



ioo8 Capitalist Production. 

sphere of production sell their commodities at the same 
prices, and make them sell their commodities in different 
spheres of production at prices which will give them the 
same profit, will give them the same proportional addition to 
the price of commodities, which has already been partially 
determined by wages. Hence competition cannot balance 
anything but inequalities in the rate of profit. In order to 
balance unequal rates of profit, the profit as an element in 
the price of conunodities must already exist. Competition 
does not create it. It lowers or raises its level, but it does 
not create this level, which appears whenever the balance has 
been struck. And when we speak of a necessary rate of 
profit, we wish precisely to know the rate of profit which is 
independent of the movements of competition, and which 
rather regulates these movements. The average rate of 
profit appears, when the forces of the competing capitalists 
balance each other. Competition may bring about this bal- 
ance, but cannot create the rate of profit which appears when- 
ever this balance is found. As soon as the equilibrium is 
reached, why is the rate of profit 10, or 20, or 100% ? On 
account of competition ? No, on the contrary, competition 
has done away with the causes, which produced deviations 
from the rate of 10, or 20, or 100%. It has brought about 
a price of commodities, by which every capital yields the 
same profit in proportion to its magnitude. The magnitude 
of this profit itself is independent of it. It merely reduces 
all deviations to this magnitude. One man competes with 
another, and competition compels him to sell his commodi- 
ties at the same price as the other. But why is this price 
10 or 20 or 100% ? 

ISTothing remains under these circumstances but to declare 
that the rate of profit, and with it the profit itself arises in 
some unaccountable manner by a certain addition to the 
price of commodities, which to that extent was determined 
by the wages. The only thing which competition tells us 
is that this rate of profit must have a certain figure. But 
we knew that before, when we spoke of an average rate of 
profit and of a " necessary price " of profit. 



The Semblance of Conipcfifion. 1009 

It is quite unnecessary to thrash this absurd process over 
in the case of ground-rent. It is evident, even so, that it, 
logically pursued, makes profit and rent appear as additions 
made by unaccountable lav^s to the price of commodities, 
which is primarily determined by wages. In short, compe- 
.tition has to shoulder the duty of explaining all inexplicable 
ideas of the economists, whereas the economists should rather 
explain competition. 

IN'ow, if we leave aside the illusion of a profit and rent 
created by the circulation, that is of parts of price arising 
through sale — for circulation can never give what it did 
not first receive — the matter simply amounts to this : 

Let the price of a commodity determined by wages be 100 ; 
let the rate of profit be 10% of the wages, and the rent 15% 
of the wages. Then the price of the commodity determined 
by wages, p.rofit and rent is 125. These added 25 cannot 
come from the sale of this commodity. For all sellers sell 
to each other at 125 what has actually cost only 100 in wages, 
and the result is the same as though they had all sold at 100. 
The operation must rather be studied independently of the 
process of circulation. 

If the three revenues share the commodity itself, which 
now costs 125 — and it does not alter the matter, if the cap- 
italist should first sell at 125, then pay 100 to the laborer, 
10 to himself, and 15 to the landlord — then the laborer re- 
ceives f, equal to 100, of the value and of the product. The 
capitalist receives ^ of the value and of the product, 
and the landlord -j^. When the capitalist sells at 125, 
instead of at 100, he merely gives to the laborer f of the 
product, in which his labor is incorporated. This would be 
the same, if he had given 80 to the laborer and kept back 
20, of which he would share 8 and the landlord 12. 
In this case he would have sold the commodity at its value, 
since in fact the additions to the price of the commodity 
are made independently of the value of the commodity, 
which is assumed to be determined here by the value of 
labor-power. This amounts in a roundabout way to saying 
that in this conception the term wages, here 100, is equal 

3L 



loio Capitalist Production. 

to the value of the product, that is, equal to that sum 
of money, iu which the same definite quantity of labor 
is represented; but that this value again dilfers from the 
real wages and therefore leaves a surplus. Only, in the pres- 
ent case, this is obtained nominally by an addition to the 
price. Hence, if the wages were 110 instead of 100, the 
profit would have to be 11 and the ground-rent IG^-, so that 
the price of the commodity would be 1374. This would 
leave tlie proportion unaltered. But as the division would 
always be obtained by a nominal addition of definite per- 
centages to the wages, the price would rise and fall with the 
wages. The wages are here first assumed as equal to the 
value of the commodity, and then again separated from it. 
In fact, however, the matter amounts in a roundabout and 
meaningless way to this, that the value of the commodity is 
determined by the quantity of labor contained in it, whereas 
the value of wages is determined by the price of the necessi- 
ties of life, and the surplus of value above the wages forms 
profit and rent. 

The separation of the value of commodities, after the sub- 
traction of the value of the means of production consumed in 
their creation, this separation of this given quantity of value 
determined by the quantity of labor incorporated in the pro- 
duced commodities into three parts, namely into wages, profit 
and rent, wdiich assume the shape of independent and mutu- 
ally unrelated revenues, this same separation appears on the 
surface of capitalist production, and consequently in the 
minds of the agents bounded by it, in an inverted fomi. 

Let the total value of a certain commodity be 300, of 
which 200 may be the value of the means of production, or 
elements of constant capital, consumed in its production. 
This leaves 100 as the amount of the new value added to 
this commodity in its process of production. This new value 
of 100 is all that is available for division among these three 
forms of revenue. Let us place the figure for wages at x, 
for profit at y, for ground-rent at z, then the sum of x + y -j- 
z will always be 100 in our present case. In the conception 
of the industrials, merchants and bankers, as in that of the 



The Semblance of Competition. ion 

vulgar economists, matters are supposed to pass in an en- 
tirely different way. According to them it is not the value 
of the commodity, which equals 100 after subtracting the 
value of the 'means of production consumed in it, nor is it 
this 100 which is divided into x, y and z. According to them 
it is rather the price of the commodity, which is composed 
of wages, profit and rent, whose figures of value are deter- 
mined independently of the value of this commodity and in- 
dependently of each other, so that x, y and z exist independ- 
ently, each by itself and is so determined, while the sum of 
these magnitudes, which may be larger or smaller than 100, 
makes up the value of the commodity by adding these three 
different values together. This case of mistaken identity is 
necessary : 

1) Because the component parts of value in the commodi- 
ties face each other as independent revenues, which are re- 
ferred back as such to three very dissimilar agencies in pro- 
duction, namely to labor, capital and land, and which then 
seem to arise out of these. The o^mership of labor-power, 
of capital, of land, is the cause, which assigns these differ- 
ent parts of the value of commodities to these respective 
owmers, and transforms these parts into revenue for them. 
But the value does not arise from a transformation of its 
parts into revenue, it must rather exist before it can be con- 
verted into revenue, before it can assume this form. The 
appearance of the reverse must fortify itself so much the 
more, as the determination of the relative magnitude of these 
three parts follows different law^s, whose connection with and 
limitation by the value of commodities themselves does not 
show itself on the surface by any means. 

2) We have seen that a general rise or fall of wages, by 
causing a movement in the opposite direction on the part of 
the average rate of profit, so long as other circumstances re- 
main the same, changes the prices of production of the dif- 
ferent commodities, raises some and lowers others, according 
to the average composition of the capital in the respective 
spheres of production. There is no doubt that at least in 
some spheres of production the experience is made, that the 



10 1 2 Capitalist Production. 

average price of a commodity rises, because wages have risen, 
and falls, because wages have fallen. Wliat is not " experi- 
enced " is the secret regulation of this change by the value of 
commodities, which is independent of wages. But if the 
rise of wages is local, if it takes place only in particular 
spheres of production in consequence of peculiar circum- 
stances, then a corresponding nominal raise of prices may oc- 
cur in the case of these commodities. The rise of the rela- 
tive value of one kind of commodities as against others, 
which have been produced with an unchanged scale of wages, 
is then merely a reaction against the local disturbance of a 
uniform distribution of surplus-value among the various 
spheres of production, a means of leveling particular rates 
of profit into an average rate. The " experience," which is 
met in that case, is once more the determination of the price 
by the wages. In both these cases, the same experience 
shows that the wages determine the prices of commodities. 
What is not " experienced," is the hidden cause of this in- 
terrelation. Furthermore: The average price of labor, that 
is, the value of labor-power, is determined by the price of 
production of the necessary articles of subsistence. If the 
price of these falls, so does that of those"". What is once more 
experienced here, is the existence of a connection between 
wages and the price of commodities. But the cause may 
seem to be an effect, and the effect a cause, as is also the case 
in the movements of market prices, where a rise of wages 
above its average corresponds to the rise of the market prices 
above the prices of production during periods of prosperity, 
and subsequent fall of wages below their average corre- 
sponds to a fall of market prices below the prices of produc- 
tion. Owing to the dependence of prices of production upon 
the values of commodities, the primary experience, aside 
from the oscillating movements of the market prices, should 
always be that the rate of profit falls whenever wages rise, 
and vice versa. But we have seen that the rate of profit 
may be determined by the movements of the value of constant 
capital;, independently of the movements of wages; so that 
wages and the rate of profit, instead of moving in opposite 



The Semblance of Competition. 1013 

directions, move in the same direction, and may rise or fall 
together. If the rate of surpliis-valne were directly identi- 
cal with the rate of profit, then this could not happen. Even 
if wages should rise as a result of a rise in the prices of food- 
stuffs, the rate of profit may remain the same, or may even 
rise, owing to a greater intensity of labor or a prolongation of 
the working day. All these experiences corroborate the il- 
lusion created by the apparently independent and reversed 
form of the parts of value, as though either the wages alone, or 
wages and profit together determined the value of commodi- 
ties. As soon as this seems to be the case with reference to 
wages, so that the price of labor and the value created by la- 
bor seem to coincide, the same applies as a matter of course 
to profit and rent. Their prices, that is, their expression 
in money, must then seem to be regulated independently of 
labor and of the value produced by it. 

3) Let us assume that the values of commodities, or the 
apparently independent prices of production, coincide seem- 
ingly directly and continually with the market prices of com- 
modities, instead of merely enforcing themselves as the regu- 
lating average prices by the continual balancing of the fluc- 
tuations of market prices. Let us assume, furthermore, that 
reproduction always takes place under the same unaltered 
conditions, so that the productivity of labor remains con- 
stant in all elements of capital. Finally, let us assume that 
that portion of the value of the produced commodities, which 
is formed in every sphere of production by the addition of 
a new quantity of labor, or by the addition of a newly pro- 
duced value to the value of the means of production, is al- 
ways divided according to the same unaltered proportion into 
wages, profit and rent, so that the actually paid wages, the 
actually realized profit, and the actual rent always directly 
coincides with the value of labor-power, with that portion 
of the total surplus-value which falls to the share of every 
active part of total capital by means of the average rate of 
profit, and with the limits, in which ground-rent is normally 
held upon this basis. In one word, let us assume that the 
division of the produced social values and the regulation of 



IOI4 Capitalist Production. 

the prices of production takes place on a capitalist basis, but 
that competition is abolished. 

Under these assumptions, then, under which ther value of 
commodities would be constant and would appear so, under 
which that part of the value of commodities which resolves 
itself into revenues would remain a constant magnitude and 
would always present itself as such, and under which, finally, 
this given and constant part of value would always be di- 
vided according to constant proportions into wages, profit 
and renl:, even under these assumptions would the real move- 
\ ment necessarily appear in an inverted form: not as a divi- 
sion of a previously given quantity of value into three parts, 
which assume mutually independent forms of revenue, but 
on the contrary, as the formation of this quantity of value by 
the sum of the independent and selfdetermined elements of 
wages, profit and rent, of which it is composed. This illu- 
sion Avould necessarily arise, because in the actual movement 
of the individual capitals and of the commodities produced 
by them not the value of the commodities would seem to pre- 
cede their division, but vice versa, the parts into which it is 
divided would seem to exist before the value of the commodi- 
ties. In the first place we have seen that to every capitalist 
the cost price of his commodities appears as a given magni- 
tude and continually presents itself as such in the actual 
price of production. But the cost price is equal to the value 
of the constant capital, the advanced means of production, 
plus the value of labor-power, which, however, presents it- 
self to the agent in production in the irrational shape of a 
price of labor, so that the wages appear at the same time as 
a revenue for the laborer. The average price of labor is a 
given magnitude, because the value of labor-power, like that 
of any other commodity, is determined by the labor time re- 
quired for its reproduction. But as concerns that portion of 
the value of commodities, which resolves itself into wages, 
it does not arise from the fact that it assumes this form of 
wages, nor from the fact that the capitalist advances to the 
laboror his share of his o^\ai product in the shape of wages, 
but from the fact that the laborer produces an equivalent 



The Semblance of Competition. 1015 

for his wages, that is, that a portion of his daily or annual 
labor produces the value contained in the price of his labor- 
power. But the wages are stipulated by contract, before the 
value equivalent to them has been produced. As an element 
of price, whose magnitude is given before the commodity and 
its value have been produced, as a constituent part of the 
cost price, wages do not appear as a part which detaches it- 
self in an independent form from the total value of the com- 
modity^ but rather as a given magnitude, which predeter- 
mines this value, a creator of price or value. A role similar 
to that of wages in the cost price of commodities is played 
by the average profit in their price of production, for the 
price of production is equal to the cost price plus the average 
profit on the advanced capital. This average profit figures 
practically, in the conception and in the calculation of the 
capitalist himself, as a regulating element, not merely to the 
extent that it determines the transfer of the capitals from 
one sphere of investment into another, but also in all sales 
and contracts, which embrace a process of reproduction ex- 
tending over long epochs. But whenever it figures in this 
way, it is a previously existing magnitude, which is in fact 
independent of the value and surplus-value produced in any 
particular sphere of production, and still more independent of 
the value and surplus-value produced by any individual invest- 
ment of capital in any sphere of production. It does not pre- 
sent itself as a result of a division of value, but rather as a 
magnitude independent of the value of the produced commodi- 
ties, as existing from the start and determining the average 
price of the commodities, that is, as a creator of value. Indeed, 
the surplus-value, owing to its separation into various and 
mutually unrelated parts, appears in a still more concrete 
form as a prerequisite for the creation of the value of com- 
modities. A part of the average profit, in the form of in- 
terest, faces the capitalist independently as an element pre- 
ceding the production of commodities and of their value. 
Although the fluctuations of the amount of interest are con- 
siderable, yet at any sp(jcific moment it is a given magni- 
tude for every capitalist, and it enters into the cost price of 



ioi6 Capitalist Production. 

the commodities produced by any individual capitalist. So 
does also the ground-rent in the form of lease money fixed 
by contract in the case of the agricultural capitalist, and in 
the form of rent for business rooms in the case of other busi- 
ness men. These parts, into which surplus-value is divided, 
being given as elements of cost price for the individual cap- 
italist, appear for this reason inversely as creators of sur- 
plus-value; they appear as creators of a portion of the price 
of commodities, just as wages appear as the creator of the 
other portion. The secret of the continual reappearance of 
these divided parts of commodity value in the role of pre- 
requisites for tlie formation of value itself is simply this, 
"that the capitalist mode of production, like any other, does 
not merely always reproduce the material product, but also 
the economic conditions, the definite economic forms of its 
creation. Its result, therefore, appears as continually as its 
prerequisites, as its prerequisites appear in the role of its re- 
sults. And it is this continual reproduction of the same 
conditions, which the individual capital anticipates in a mat- 
ter of fact way as an indubitable fact. So long as the cap- 
italist mode of production persists as such, a portion of the 
newly added labor resolves itself continually into wages, an- 
other into profit (interest and profit of enterprise), and a 
third into rent. In the contracts between the owners of the 
various agencies of production this is always assumed, and 
this assumption is correct, no matter how much tie relative 
proportions may fluctuate in individual cases. The definite 
shape, in which the parts of value face each other, is assumed 
as pre-existing, because it is continually reproduced, and it 
is continually reproduced, because it is continually taken for 
granted. 

It is true, that both experience and the appearance of 
things demonstrate the fact that the market prices, whose in- 
fluence seems to the capitalist to be indeed the whole thing 
in the determination of values, are by no means dependent 
upon these anticipations, so far as their amount is concerned. 
They are not governed by any contracts demanding a high or 
a low rent and interest. But the market prices are constant 



The Semblance of Competition. 1017 

only in their changes, and their average for a certain long 
period results in the respective averages of wages, profit and 
rent as magnitudes dominating the constant ones, such as the 
market prices, in the last analysis. 

On the other hand, it seems like a simple reflection, that 
if wages, profit and rent are creators of value for the reason 
that they seem to precede the production of value, and that 
they are taken for granted by the individual capitalist in his 
cost price and price of production, then the constant portion 
of value, whose value enters as a given quantity into the 
production of every commodity, is also a creator of value. 
But the constant portion of value is nothing but a quantity 
of commodities and, therefore, of values of commodities. 
Thus we. should arrive at the absurd tautology that the value 
of commodities is the creator and cause of the value of com- 
modities. 

If the capitalist were interested in reflecting about this — ' 
and his reflections as a capitalist are dictated exclusively by 
his interests and his interested motives — his experience 
would show him, that the product, which he himself pro- 
duces, passes over into other spheres of production as a con- 
stant part of capital, and that products of these other spheres 
of production pass over into his own product as constant 
parts of capital. Owing to the fact that the additional value 
of his ov^m new production, from his point of view, seems to 
be formed by means of wages, profit and rent, the same ap- 
pearance holds good also in the case of the constant portion 
consisting of products of other capitalists. And so the price 
of the constant portion of capital, and with it the total value 
of the commodities, reduces itself in the last resort, although 
in a somewhat unaccountable manner, to a sum of values re- 
sulting from the addition of the independent creators of 
value, wages, profit and rent, which are regulated by differ- 
ent laws and come from different sources. 

4) Whether the commodities are sold, or not sold, at their 
values, whether their value is determined in one way or an- 
other, is quite immaterial for the individual capitalist. This 
determination of values is from the very outset a process 



ioi8 Capitalist Production. 

passing behind his back and controlled by conditions inde- 
pendent of himself, because it is not the values, but the di- 
vergent prices of production, which form the regulating av- 
erage prices in every sphere of production. The determina- 
tion of values as such, interests and influences the individual 
capitalist and the capital in each sphere of production only 
to the extent that the reduced or increased quantity of labor 
required in accordance with the rise or fall of the produc- 
tive power of labor, enables him in one case to make an ex- 
tra profit, and compels him in another to raise the price of 
his commodities, because an additional amount of wages, an 
additional amount of constant capital, and consequently some 
more interest, fall upon each individual part of the product, 
or upon the individual commodities. This determination 
of values interests him only to the extent that it raises or 
lowers the cost of production of commodities for himself, in 
other words, only to the extent that it places him in an ex- 
ceptional position. 

On the other hand, wages, interest and rent appear to him 
as regulating boundaries, not only of the price at which he 
can realize the profit of enterprise, that is, the profit falling 
to his share in his capacity as a producing capitalist, but also 
of the price at which he must be able to sell his commodi- 
ties, if he is to keep his reproduction going at all. It is quite 
immaterial for him, whether he realises the value and sur- 
plus-value in his commodities by their sale, provided only 
that he gets the customary profit or enterprise or more than 
that, so long as he pockets this surplus over and above the 
individual cost price determined for him by wages, interest 
and rent. Aside from the constant portion of capital, wages, 
interest and rent appear to him, therefore, as the limiting, 
creating, determining elements of the price of commodities. 
For instance, if he can succeed in depressing wages below 
their normal level, below the value of labor-power, if he can 
obtain capital at a lower rate of interest, if he can pay less 
than the normal amount for rent, then he does not care, 
whether he sells his product below its value, or even below 
its price of production, so that he gives away without any 



The Semhlancc of Competition. 1019 

equivalent a portion of the surplus-value contained in the 
commodities. This applies even to the constant portion of 
capital. For instance, if an industrial capitalist can buy 
his raw material below its price of production, then this 
protects him against loss, even if he sells it in his own 
finished product under its price of production. His profit of 
enterprise may remain the same, or may even increase, so 
long as the excess of the price of commodities over its ele- 
ments remains the same or increases. But aside from the 
value of the means of production, which enter into his own 
production with a given price, it is precisely wages, interest 
and rent which enter into this production as limiting and 
regulating amounts of price. Consequently they appear to 
him as elements determining the price of commodities. The 
profit of enterprise, from his point of view, seems determined 
either by the excess of the market prices, dependent upon 
accidental conditions of competition, over the immanent 
value of commodities determined by those elements of price. 
Or, to the extent that this profit itself exerts a determining 
influence upon market prices, it seems itself dependent upon 
the competition between buyers and sellers. 

In the competition, both of the individual capitalists 
among themselves and in the competition on the w^orld mar- 
ket, it is the given and presupposed magnitudes of wages, 
interest and rent which enter into the calculation as constant 
and regulating magnitudes. They are constant, not in the 
sense of being unalterable magnitudes, but in the sense that 
they are given in any individual case and that they form the 
constant boundary for the continually fluctuating market 
prices. For instance, in the competition on the world mar- 
ket the question is exclusively as to whether the commodities 
can be sold at, or below, the existing world market prices 
with a profit, as to whether, with the existing wages, interest 
and rent a corresponding profit of enterprise can be real- 
ized. If the wages and the price of land are low in a cer- 
tain country, while the interest on capital is high, because 
the capitalist mode of production has not been developed in 
it, whereas in some other country the wage and the price of 



I020 Capitalist Production. 

land are nominally high, while the interest on capital is low, 
then the capitalist employs in the one country more labor 
and land, in the other relatively more capital. These fac- 
tors enter as determining elements into the calculation by 
which the degree of possible competition between these two 
countries is estimated. Here, then, experience shows theo- 
retically, and the interested calculation of the capitalist 
shows practically, that the prices of commodities are deter- 
mined by wages, interest and rent, by the price of labor, of 
capital and of land, and that these elements of price are in- 
deed the regulating factors of price. 

Of course, this always leaves an element which is not as- 
sumed as pre-existing, but which rather results from the mar- 
ket price of commodities, namely the surplus above the cost 
price formed by the addition of these elements, namely of 
wages, interest and rent. This fourth element seems to be 
determined in every individual case by competition, and in 
the long average of cases by the average profit, which in its 
turn is regulated by this same competition, only at longer 
intervals. 

5) On the basis of capitalist competition it becomes so much 
a matter of course to separate the value, in which the newly 
added labor is represented, into the forms of revenue known 
as wages, profit and ground-rent, that this method is applied 
(not to mention past stages of history, of which we gave 
illustrations under the head of ground-rent) even in cases, 
in which the conditions required for those forms of revenue 
are missing. In other words, everything is counted under 
these heads by analogy. 

If an independent laborer — for instance, a small farmer, 
in whose case all three forms of revenue may be used — 
works for himself and sells his own product, he is, in the 
first place, considered as his own employer (capitalist), who 
employs himself as a laborer, and as his own landlord, who 
employs himself as his own tenant. To himself as a wage 
worker he pays his wages, to himself as a capitalist he turns 
over his profit, and to himself as a landlord he pays his rent. 
Assuming the capitalist mode of production and the condi- 



The Semblance of Competition. 1021 

tions corresponding to it to be the general basis of society, 
this conception is correct, in so far as he does not owe it to 
his labor, but to his ownership of means of production — ■ 
which have here assumed the general form of capital — that 
he is able to appropriate bis own surplus labor. And fur- 
therraore, to the extent that he creates his own product in 
the shape of commodities, and thus depends upon its price 
(and even if he does not depend upon it, this price can be 
estimated), the quantity of surplus labor, which he can real- 
ize, does not depend upon its own size, but upon the general 
rate of profit; and in like manner any surplus above the 
amount of surplus-value allowed by the general rate of profit 
is not determined by the quantity of labor performed by him- 
self, but can be appropriated by him only because he is the 
owner of the land. Because a form of production not cor- 
responding to the capitalist mode of production may thus 
be brought in line with its forms of revenue — and to a' cer- 
tain extent not incorrectly — the illusion is strengthened so 
much the more that the capitalist conditions are the natural 
conditions of any mode of production. 

On the other hand, if we reduce the wages to their general 
basis, namely to that j)ortion of the product of the producer's 
own labor which passes over into the individual consumption 
of the laborer; if we relieve this portion of its capitalist lim- 
itations and extend it to that volume of consumption, which 
is permitted, on the one hand, by the existing productivity 
of society (that is the social productivity of his own individ- 
ual labor in its capacity as a truly social one), and on the 
other hand, required by the full development of his individ- 
uality; if we reduce the surplus labor and the surplus prod- 
uct to that measure, which is required under the existing 
conditions of social production, on the one hand for the 
formation of an insurance and reserve fund, and on the other 
hand for the continuous expansion of reproduction to an ex- 
tent dictated by social needs ; finally, if we include in num- 
ber one, necessary -labor, and number two, surplus labor, that 
quantity of labor, which must always be performed by the 
ablebodied for the incapacitated or immature members of 



1022 Capitalist Production. 

society, in other words, if we deprive both wages and surplus- 
value, both necessary and surplus labor, of their specifically 
capitalist character, then we have not these forms, but merely 
their foundations, which are common to all social modes of 
production. 

Moreover, this manner of generalizing was also used in 
previous modes of production, for instance, in the feudal 
one. Conditions of production, which did not correspond to 
it at all, which stood entirely outside of it, were counted in 
as feudal relations. This was done, for instance, in Eng- 
land, in the case of tenures in common socage (as distinguished 
from tenures on knight's service), which comprised merely 
monetary obligations and were feudal in name only. 



CHAPTER LI. 

CONDITIONS OF DISTRIBUTION AND PEODUCTION. 

The new value added by the annual new labor — and thus 
also that portion of the annual product, in which this value 
is represented and may be drawn out of the total fund and 
separated from it — ■ is divided into three parts, which as- 
sume three different forms of revenue. These forms indi- 
cate that one portion of this value belongs, or goes to, the 
owner of labor-power, another portion to the owner of cap- 
ital, and a third portion to the owner of land. These, then 
are forms, or conditions, of distribution, for they express 
conditions, under which the newly produced total value i3 
distributed among the owners of the different agencies of 
production. 

To the ordinary mind these conditions of distribution ap- 
pear as natural conditions, as conditions arising from the 
nature of all social production, from the laws of human pro- 
duction in general. While it cannot be denied that precap- 
italist societies show other modes of distribution, yet those 
modes are interpreted as undeveloped, • imperfect, disguised. 



Condifio:is of Distribution. 1023 

differently colored modes of these natural conditions of dis- 
ti'ibution, which have not reached their pui-est expression and 
their highest form. 

The only correct thing in this conception is this: Assum- 
ing some form of social production to exist (for instance, 
that of the primitive Indian communes, or that of the more 
artificially developed communism of the Peruvians), a dis- 
tinction can always be made between that portion of labor, 
which supplies products directly for the individual consump- 
tion of the producers and their families — aside from the 
part which is productively consumed — and that portion of 
labor, which produces surplus products, which always serve 
for the satisfaction of social needs, no matter what may be 
the mode of distribution of this surplus product, and whoever 
may perform the function of a representative of these so- 
cial needs. The identity of the various modes of distribu- 
tion amounts merely to this, that they are identical, if we 
leave out of consideration their differences and specific forms 
and keep in mind only their common features as distin- 
guished from their differences. 

A more advanced, more critical mind, however, admits the 
historically developed character of the condition of distribu- 
tion,^ ^^ but clings on the other hand so much more tena- 
ciously to the unaltering character of the conditions of pro- 
duction arising from human nature and thus independent of 
all historical development. 

On the other hand, the scientific analysis of the capitalist 
mode of production demonstrates that it is a peculiar mode 
of production, specifically defined by historical development; 
that it, like any other definite mode of production, is condi- 
tioned upon a certain stage of social productivity and upon 
the historically developed form of the forces of production. 
This historical prerequisite is itself the historical result and 
product of a preceding process, from which the new mode of 
production takes its departure as from its given foundation. 
The conditions of production corresponding to this specific, 
historically determined, mode of production have a specific, 

^^J. Stuart Mill: Some Unsettled Questions in Political Economy, London, 18S4. 



1024 Capitalist Production. 

historical; passing character, and men enter into them as 
into their process of social life, the process by which they 
create their social life. The conditions of distribution are 
essentially identical with these conditions of production, be- 
ing their reverse side, so that both conditions share the same 
historical and passing character. 

In the study of conditions of distribution, the start is made 
from the alleged fact, that the annual product is distributed 
among wages, profit and rent. But if so expressed, it is a 
misstatement. The product is assigned on one side to cap- 
ital, on the other to revenues. One of these revenues, wages, 
never assumes the form of a revenue, a revenue of the la- 
borer, until it has first faced this laborer in the form of cap- 
ital. The meeting of the produced requirement of labor and 
of the general products of labor as capital, in opposition to 
the direct producers, includes from the outset a definite so- 
cial character of the material requirements of labor as com- 
pared to the laborers, and with it a definite relation, into 
which they enter in production itself with the owners of the 
means of production and among themselves. The trans- 
formation of these means of production into capital implies 
on their part the expropriation of the direct producers from 
the soil, and thus a definite form of property in land. 

If one portion of the product were not transformed into 
capital, the other would not assume the form of wages, profit 
and rent. 

On the other hand, just as the capitalist mode of produc- 
tion is conditioned upon this definite social form of the con- 
ditions of production, so it reproduces them continually. It 
produces not merely the material products, but reproduces 
continually the conditions of production, in which the others 
are produced, and with them the corresponding conditions 
of distribution. 

It may indeed be said that capital (and the ownership of 
land implied by it) is itself conditioned upon a certain mode 
of distribution, namely the expropriation of the laborers from 
the means of production, the concentration of these condi- 
tions in the hands of a minority of individuals, the exclusive 



Conditions of Distribution. 1025 

ownership of land by other individuals, in short, all those 
conditions, which have been described in the Part dealing 
with Primitive Accumulation (Volume I. Chapter XXVI). 
But this distribution differs considerably from the meaning 
of " conditions of distribution," provided we invest them 
with a historical character in opposition to conditions of pro- 
duction. By the first kind of distribution is meant the vari- 
ous titles to that portion of the product, which goes into in- 
dividual consumption. By conditions of distribution, on the 
other hand, we mean the foundations of specific social func- 
tions performed within the conditions of production them- 
selves by special agents in opposition to the direct producers. 
They imbue the conditions of production themselves and 
their representatives with a specific social quality. They de- 
termine the entire character and the entire movement of pro- 
duction. 

Capitalist production is marked from the outset by two pe- 
culiar traits. 

1) It produces its products as commodities. The fact 
that it produces commodities does not distinguish it from 
other modes of production. Its peculiar mark is that the 
prevailing and determining character of its products is that 
of being commodities. This implies, in the first place, that 
the laborer himself acts in the role of a seller of commodi- 
ties, as a free wage worker, so that wage labor is the typical 
character of labor. In view of the foregoing analyses it is 
not necessary to demonstrate again, that the relation between 
wage labor and capital determines the entire character of the 
mode of production. The principal agents of this mode of 
production itself, the capitalist and the wage worker, are to 
that extent merely personifications of capital and wage la- 
bor. They are definite social characters, assigned to indi- 
viduals by the process of social production. They are prod- 
ucts of thgse definite social conditions of production. 

The character, first of the product as a commodity, sec- 
ondly of the commodity as a product of capital, implies all 
conditions of circulation, that is, a definite social process 
through which the products must pass and in which they as- 

SM 



1026 Capitalist Production. 

Slime definite social forms. It also implies definite relations 
of the agents in production, by which the formation of value 
in the product and its reconversion, either into means of sub- 
sistence or into means of production, is determined. But 
aside from this, the two above-named characters of the prod- 
uct as commodities, and of commodities as products of cap- 
ital, dominate the entire determination of value and the reg- 
ulation of the whole production by value. In this specific 
form of value, labor appears on the one hand only as social 
labor; on the other hand, the distribution of tliis social labor 
and the mutual supplementing and circulation of matter in 
the products, the subordination under the social activity and 
the entrance into it, are left to the accidental and mutually 
nullifying initiative of tlie individual capitalists. Since 
these meet one another only as owners of commodities, and 
every one seeks to sell his commodity as dearly as possible 
(being apparently guided in the regulation of his production 
by his own arbitrary will), the internal law enforces itself 
merely by means of their competition, by their mutual pres- 
sure upon each other, by means of which the various devia- 
tions are balanced. Only as an internal law, and from the 
point of view of the individual agents as a blind law, does the 
law of value exert its influence here and maintain the social 
equilibrium of production in the turmoil of its accidental 
fluctuations. 

Furthermore, the existence of commodities, and still more 
of commodities as products of capital, implies the extemali- 
zation of the conditions of social production and the personi- 
fication of the material foundations of production, which 
characterize the entire capitalist mode of production. 

2) The other specific mark of the capitalist mode of pro- 
duction is the production of surplus-value as the direct aim 
and determining incentive of production. Capital produces 
essentially capital, and does so only to the extent that it pro- 
duces surplus-value. We have seen in our discussion of rel- 
ative surplus-value, and in the discussion of the transforma- 
tion of surplus-value into profit, that a mode of production 
peculiar to the capitalist period is founded upon this. This 



Conditions of Production loiy 

is a special form in tlie development of the productive powers 
of labor, in such a way that these powers appear as self- 
dependent powers of capital lording it over labor and stand- 
ing in direct opposition to the laborer's own development. 
Production which has for its incentive value and surplus- 
value implies, as we have shown in the course of our analyses, 
the perpetually effective tendency to reduce the labor neces- 
sary for the production of a commodity, in other words, to re- 
duce its value, below the prevailing social average. The 
effort to reduce the cost price to its minimum becomes the 
strongest lever for the raising of the social productivity of 
labor, which, however, appears under these conditions as a 
continual increase of the productive power of capital. 

The authority assumed by the capitalist by his personifica- 
tion of capital in the direct process of production, the social 
function performed by him in his capacity as a manager and 
ruler of production, is essentially different from the authority 
exercised upon the basis of production by means of slaves, 
serfs, etc. 

Upon the basis of capitalist production, the social character 
of their production impresses itself iipon the mass of direct 
producers as a strictly regulating authority and as a social 
mechanism of the labor process gTaduated into a complete 
hierarchy. This authority is vested in its bearers only as a 
personification of the requirements of labor standing above 
the laborer. It is not vested in them in their capacity as po- 
litical or theoretical rulers, in the way that it used to be under 
former modes of production. Among the bearers of this au- 
thority, on the other hand, the capitalists themselves, 
complete anarchy reigns, since they face each other only as 
owners of commodities, while the social interrelations of pro- 
duction manifest themselves to these capitalists only as an 
overwhelming natural' lav/, which curbs their individual li- 
cense. 

It is only because labor is presumed as wage labor, and the 
means of production in the form of capital, only on account 
of this specific social form of these two essential agencies in 
production, that a part of the value (product) presents itself 



1028 Capitalist Production. 

as surplus-value and this surplus-value as profit (rent), as a 
gain of the capitalists, as additional available wealth belong- 
ing to the capitalist. But only because they present them- 
selves as his profit, do the additional means of production, 
which are intended for the expansion of reproduction, and 
which form a part of this profit, present themselves as new 
additional capital, and only for this reason does the expansion 
of the process of reproduction present itself as a process of cap- 
italist accumulation. 

Although the form of labor, as wage labor, determines the 
shape of the entire process and the specific mode of produc- 
tion itself, it is not wage labor which determines value. In 
the determination of value the question turns around social 
labor time in general, about that quantity of labor, which 
society in general has at its disposal, and the relative absorp- 
tion of which by the various products determines, as it were, 
their respective social weights. The definite form, in which 
the social labor time enforces itself in the determination of 
the value of commodities, is indeed connected with the wage 
form of labor and with the corresponding form of the means 
of production as capital, inasmuch as the production of com- 
modities becomes the general form of production only upon 
this basis. 

'Now let us consider the so-called conditions of distribution 
themselves. Wages are conditioned upon wage labor, profit 
upon capital. These definite forms of distribution have for 
their prerequisites definite social characters on the part of the 
conditions of production, and definite social relations of the 
agents in production. The definite condition of distribution, 
therefore, is merely the expression of the historically de- 
termined condition of production. 

And now let us take profit. This definite form of surplus- 
value is a prerequisite for the new creation of means of pro- 
duction by means of capitalist production. It is a relation 
which dominates reproduction, although it seems to the indi- 
vidual capitalist as though he could consume his entire profit 
as his revenue. But he meets barriers which hamper him 
even in the form of insurance and reserve funds, laws of com- 



Conditions of Production 1029 

petition, etc. These demonstrate to him bj practice that profit 
is not a mere category in the distribution of the product for 
individual consumption. Furthennore, the entire process of 
capitalist production is regulated by the prices of products. 
But the regulating prices of production are in their turn regu- 
lated by the equalization of the rate of profit and by the dis- 
tribution of capital among the various social spheres of produc- 
tion in correspondence with this equalization. Profit, then, 
appears here as the main factor, not of the distribution of 
products, but of their production itself, as a part in the dis- 
tribution of capitals and of labor among the various spheres 
of production. The division of profit into profit of enterprise 
and interest appears as the distribution of the same revenue. 
But it arises primarily from the development of capital in its 
capacity as a self-expanding value, creating surplus-value, it 
arises from this definite social form of the prevailing process 
of production. It develops credit and credit institutions out 
of itself, and with them the shape of production. In interest, 
etc., the alleged forms of distribution enter as determining 
elements of production into the price. 

Ground-rent might seem to be a mere form of distribution, 
because private land as such does not perform any, or at least 
no nonnal, function in the process of production itself. But 
the fact that, first, rent is limited to the excess above the 
average profit, and, secondly, that the landlord is depressed by 
the ruler and manager of the process of production and of the 
entire social life's process to the position of a mere holder of 
land for rent, a usurer in land and collector of rent, is a 
specific historical result of the capitalist mode of production. 
The fact that the earth received the form of private property 
is a historical requirement for this mode of production. The 
fact that private ownership of land assumes forms, which per- 
mit the capitalist mode of production in agriculture, is a 
product of the specific character of this mode of production. 
The income of the landlord may be called rent, even under 
other forms of society. But it differs essentially from the rent 
as it appears under the capitalist mode of production. 

The so-called conditions of distribution, then, correspond to 



1030 Capitalist Production. 

and arise from historically defined and specifically social forms 
of the process of production and of conditions, into which hu- 
man beings enter in the process by which they reproduce their 
lives. The historical character of these conditions of dis- 
tribution is the same as that of the conditions of production, 
one side of which they express. Capitalist distribution dif- 
fers from those forms of distribution, which arise from other 
modes of production, and every mode of distribution disap- 
pears with the peculiar mode of production, from which it 
arose and to which it belongs. 

The conception, which regards only the conditions of dis- 
tribution historically, but not the conditions of pioduction, 
is, on the one hand, merely an idea begotten by the incipient, 
but still handicapped, critique of bourgeois economy. On 
the other hand it rests upon a misconception, an identifica- 
tion of the process of social production with the simple labor 
process, such as might be performed by any abnormally situ- 
ated human being without any social assistance. To the ex- 
tent that the labor process is a simple process between man 
and nature, its simple elements remain the same in all social 
forms of development. But every definite historical form of 
this process develops more and more its material foundations 
and social forms. Whenever a certain maturity is reached, 
one definite social form is discarded and displaced by a higher 
one. The time for the coming of such a crisis is announced 
by the depth and breadth of the contradictions and antago- 
nisms, which separate the conditions of distribution, and with 
them the definite historical form of the corresponding condi- 
tions of production, from the productive forces, the produc- 
tivity, and development of their agencies. A conflict then 
arises between the material development of production and 
its social form.^^^ 

"3 See the work on Competiti0n and Co-»peretion (18S2?). 



The Classes. 



103 1 



CHAPTER LII. 



the: classes. 



The owners of mere labor-power, the owners of capital, and 
the landlords, Avhose respective sources of income are wages, 
profit and gronnd-rent, in other words, wage laborers, capi- 
talists and landlords, form the three great classes of modem 
society resting upon the capitalist mode of production. 

In England, modern society is indisputably developed 
most highly and classically in its economic structure. !N^ever- 
theless the stratification of classes does not appear in its pure 
form, even there. Middle and transition stages obliterate 
even here all definite boundaries, although much less in the 
rural districts than in the cities. However, this is imma- 
terial for our analysis. We have seen that the continual 
tendency and law of development of capitalist production is 
to separate the means of production more and more from la- 
bor, and to concentrate the scattered means of production 
more and more in large groups, thereby transforming labor 
into wage labor and the means of production into capital. 
In keeping wdth this tendency we have, on the other hand, 
the independent separation of private land from capital and 
labor, ^^^ or the transformation of all property in land into 
a form of landed property corresponding to the capitalist 
mode of production. 

The first question to be answered is this: What consti- 
tutes a class ? And this follows naturally from another ques- 
tion, namely: What" constitutes wage laborers, capitalists 
and landlords into three great social classes ? 

^^* F. List remarks correctly: "Prevalence of self-management in the case of 
large estates proves only a lack of civilization, of means of communication, of 
home industries and rich cities. For this reason it is found everywhere in Russia, 
Poland, Hungary, Mecklenburg. Formerly it prevailed also in England. But with 
the rise of commerce and industry came their division into medium-sized farms 
and their occupancy by tenants." (The Agrarian Constitution, the Petty Farm, and 
Emigration, 1842, p. 10.) 



1032 Capitalist Production. 

At first glance it might seem that the identity of their reve- 
nues and their sources of revenue does that. Thej are three 
great social groups, vi'hose component elements, the individ- 
uals forming them, live on wages, profit and ground-rent, or 
by the utilization of their labor-power, their capital, and their 
private land. 

However, from this point of view physicians and officials 
would also form two classes, for they belong to the two distinct 
social groups, and the revenues of their members flow from 
the same common source. The same would also be true of 
the infinite dissipation of interests and positions created by 
the social division of labor among laborers, capitalists and 
landlords. Tor instance, the landlords are divided into 
owners of vineyards, farms, forests, mines, fisheries. 
[Here the manuscript ends.] 



ETTD OF VOLUME III. 



INDEX. 



A Agricultural labor, as a special occu- 
pation, a modern product, 742. 

Abolition of Capitalism within the cap- Agricultural Production, the price of 

italist mode of production, 519. production of its worst soil is always 

Absolute and relative growth of sur- the regulating market price of pro- 
plus-value with a falling rate of profit, duction, 770. 
253. Agricultural Products, may be sold as a 

Absolute Ground Rent, arises v/hen agri- whole below their value while indus- 

cultural capital sets in motion more trial products are sold above their 

surplus-labor than an industrial capital value, 887. 

of the same size, 882. Agriculture, its capitalist form con^dered 

Absolute Rent, a surplus of value above as a basis of the Marxian analysis of 

the price of production, when agri- ground rent, 720. 

cultural products are sold at a monoo- Agriculture, its capitalist form implies 
oly price, 885. the expropriation of the rural la- 
Absolute Rent, the cause of the increased borers from the land, 721. 

price of agricultural products, 886. Agriculture, its rational management pre- 

Absolute Rent, plays an important part vented by capitalist production, 144. 
in extractive industries, 897. American Firms, ruined by English over- 
Absolute Rent, conditioned either upon speculation, 655. 

the realized surplus above the price Annual Product, its value equal to wages 

of_ production or upon a monopoly plus surplus-value, 971. 

price exceeding the value of the prod- Appreciation of capital in value may be 

uct, 936. accompanied by a fall of the rate of 

Absolute Overproduction of capital, .299. profit, 134. 

Abstinence, in the form of actual saving. Auxiliary Capital used for circulation 

falls upon the shoulders of those, by the industrial capitalist creates no 

who get the least reward under cap- value or surplus-value, 343. 

italism, 596. _ _ Average Rate of Interest, instruction 

Accident, its role in the determination how to find it, 426. 

of a general rate of interest, 427. Average Profit defined, 186. 

Actual Capital, its relation to money- Average rate of profit appears as a mu- 

capital, 559. tual compensation of capitalists, 246. 

Additional Capital, its investment in ag- Average Rate of Profit, causes which 

riculture influenced by stringency or turn the law of its fall into a tendency, 

prosperity, 895. _ 272. 

Additional Capital, a case where its Average Profit depends on profits of in- 
doubling trebles production, 817. dividual and on profits of social capi- 

Additional Capital, upon land, may bring tal, 187. 

forth additional surplus profit, but at Average Rate of Profit determined by 

a decreasing rate, 803. two factors, 192. 

Additional Capital, upon land, may bring Average Rate of Profit formed by the 
forth larger quantities of product than average of rates for each 100 of in- 
original investments, 805. vested capitals during a specified time. 

Additional Capital, required for the 190. 

withdrawal of the original capital from Average Rate of Profit, how it comes 

one soil and its transfer to another, about, 205. 

may be invested with a falling, rising. Average Rate of Profit, its general for- 

or constant rate of rent per acre, mation, 183. 

818. _ Average Rate of Profit leads to difference 

Additional Capital, whose productivity between mass and rate of surplus- 
is lower than that of the original cap- value and of profit, 198. 
ital invested in the worst soil, lowers Average Rate of Profit, theory of its 
the difference between the better and law explained, 248. 
the worst soil, 852. Average Rate of Profit, warring tenden- 

Adulteration, a means of raising the cies which try to raise and to lower 

rate of profit, 100. it, 273. 

Advances on Bills, a regular practice of B 
banks, 626. 

Advantages resulting from release or Balance of Trade, in time of crisis 

tie-up of variable capital affect only against every commercially developed 

capital already engaged, 138. nation, 578. 

1033 



i034 



Index. 



Balance of Trade, its demand for money 
accommodation a demand for money 
and capital, 534. 
Balance of Trade, its difference from 
the balance of payment crowded into 
a shorter time by crises, 608. 
Balance of Trade, its relation to rates 

of exchange, 694. 
Bank Act of 1844, in England, sought 
to transform all precious metals in 
the country into currency, 663. 
Bank Acts in England, almost caused 
ruin of Bank of England, 481. 

Bank an institution to centralize money- 
capital, 473. 

Bank, makes a profit on credit, not on 
actual capital owned by it, 637. 

Banks, originally not credit but deposit 
institutions, 707. 

Banks, tax state for power granted to 
them, 638. 

Bank Deposits, the possibility of their 
being far greater than the actual quan- 
tity.-of currency depends upon the pur- 
chases and sales and the resulting 
number of return wanderings of the 
same money, 587. 

Banker, his mania to consider all pay- 
ments made by him as loans, 506. 

Banker, his profits proportionate to the 
amount of his banking capital, 476. 

Bankers, contradict each other, 610. 

Bankers don't analyze statistics of ex- 
ports and imports, 627. 

Bankers, do not care to let go of money 
at any interest during a stringency, 
630. 

Bankers, don't expect to pay due bills 
in money, but in clearing house cer- 
tificates, 629. 

Bankers, make profits out of the ruin 
of their victims, 634. 

Bankers, regard the money of the pub- 
lic as their property, 628. 

Bankers, speculate with deposits of their 
customers, 586. 

Banking Capital, its composition, 545. 

Bank Legislation in England, had for 
its purpose the raising of the rate 
of interest for the Bank of England, 
657. 

Bank Notes, accumulated during crises, 
620. 

Bank Note, the coin of wholesale trade, 
474. 

Bank Notes, their credit is good, 652. 

Bank of England, effect of its separation 
in two departments on the converti- 
bility of its notes, 654. 

Bank of England, has power to fix mar- 
ket rate of interest during stringency, 
639. 

Bank of England, its internal circulation 
between its two departments, 514. 

Bank of England, its organization ex- 
plained, 651. 

Bank of England, its security illusory, 
558. 

Bank of England, makes profits out of a 
stringency, 640. 

Bank Reserve, held intact even if the 
entire business of the country went to 
ruin, 492. 

Bank Reserve, shows its spuriousness 
during crises, 632. 



Bills of Exchange, are not good se- 
curity, 635. 

Bills of Exchange as a means of pay- 
ment, 469. 

Bills of Exchange represent the value 
of commodities just as a bank note 
represents gold, 505. 

Bills of Exchange, their enormous ex- 
tension, 470. 

Bread dear in Rome compared to mod- 
ern times, 123. 

Buildings, fall into the hands of land- 
lord after the expiration of the lease, 
together with the land, 728. 

Building Speculation, figures on ground 
rent, not on house rent, 899. 

Bullion Trade first carried on with gold 
and silver, 375. 



Cancelling Debts, a means of restoring 
the international balance, 676. 

Capital and Labor-Power must be easily 
transferable from one sphere of pro- 
duction to another, 231. 

Capital and Profit, the relations be- 
tween their magnitude, composition 
and rate analysed, 165. 

Capital, cannot yield interest without 
productive function, 444. 

Capital, cheap when money is dear, 659. 

Capital in a fallow state, 295. 

Capital, changes in one of its elements, 
when passing a certain limit, compel 
corresponding changes in all other ele- 
ments, 78. 

Capital, in the economic meaning, is not 
the fruit of the saving of one's own, 
but of other people's means, 597. 

Capital, in the relation between capital 
and profit, appears as a relation to it- 
self, 62. 

Capital invested in foreign countries 
may help to keep up the rate of profit 
at home, 279. 

Capital is the real barrier of capitalist 
production, 293. 

Capital, its depreciation a check to the 
tendency of the rate of profit to fall, 
277. 

Capital, its elements in Cost Price, 43. 

Capital, its growing accumulation implies 
its growing concentration, 310. 

Capital, its movements in response to 
changes in the rate of interest, 693. 

Capital of Circulation distinguished from 
Circulating Capital, 315. 

Capital, of the whole society, divided 
into two classes, 974. ' 

Capital seeks spheres with high rates of 
profit, 230. 

Capitals of average, lower and higher 
composition and their rates of profit 
when wages fall, 238. ■• 

Capitals of lower, average and higher 
composition defined, 193. 

Caj^itals, of the same organic composi- 
tion, may have a different value-com- 
position, S90. 

Capitalism _advances_ human development 
by wasting individual development, 
106. 

Capitalist becomes superfluous when su- 



Index. 



1035 



perintendence is left to wage labor- Circulating Money, its quantity increases 

ers, 456. during times of prosperity, 52». 

Capitalist, drawing profits of enterprise, Circulation, its time reduced principally 

appears as a laborer, 447. by improved means of communication, 

Capitalist, his books show wages paid 86. 

but not variable capital invested, 90. Circulation of currency, cannot be ex- 

Cap^talist, his imagination analyzed, 245.'. panded without increasing the issue 

Capitalist, his misconception of the ori- of bank notes, 537. 

gin of profits, 163. Circulation realizes the surplus-value pro- 
Capitalist is interested in surplus-value duced in sphere of production, 53. 
not in the use-value of the commodity Classes, not determined by the identity 
containing it, 54. of their revenues, 1032. 

Capitalist makes allowance for fluctua- Classes, what are their characteristic dis- 

ti9ns_ of profit, 243. tinctions, 1031. 

Capitalist, regarded as the laborer by Classic Economy, dissolved the false is- 
Saint Siipon and his followers, 711. olation and ossification of the so- 
Capitalist, remembers influence of labor cial elements in vulgar econom.y, 967. 
on capital only when rate of profit is Class Rule defended as a law of nature, 
reduced, 102. . 454. 

Capitalist sees things upside down in Clearing House, realizes the greatest 

capitalist production, 42. economy in currency, 611. 

Capitalist view of the origin of profits Coal, saved by increase of pressure in 

explained, 197. boilers, 118. 

Capitalist wastes laborer's life to save Coins, the same pieces perform services 

machinery, 104. for many different people, 525. 

Capitalists individually and as a class in- Colonist, counts labor higher than capi- 

terested in fhe exploitation of labor- tal, 807. 

power, 232. .^ Commerce develops products into com- 

Capitalists compete against each other modities, 386. 

individually but unite as a class against Commerce meets obstacles in the pre- 

the working class, 233. capitalist forms of production, 393. 

Capitalist Production decreases relative Commerce originally the premise for the 
value of invested capital compared to transformation of crafts, rural domes- 
mass of worked-up materials and ex- tic industry, and feudal agriculture 
ploited labor, 105. into capitalist enterprises, 395. 

Capitalists think only of their own sal- Commerce rules industry in precapitalist 

vation in a crisis, 488. stages of society, 389. 

Capitalist Production, its twofold in- Commercial Capital abbreviates the proc- 

fluence on merchants' capital, 366. ess of transformation for the manu- 

Capitalist Production, its two peculiar facturer, 323. _ 

traits, 1025. Commercial Capital, a changed form of 

Capitalist Production, rationalizes agri- Capital_ of Circulation, 316. _ 

culture by rendering it capable of Commercial Capital creates neither value 
operation on a social scale and reduc- nor surplus-value by buying and sell- 
ing private ownership to an absurdity, ing, 331. 
724. Commercial Capital, its independent oper- 

Capitalist Production relegates mer- ations analyzed, 320. 

chants' capital to the position of an Com.mercial Capital, its movements differ 

agent of industrial capital, 385. from producers' commodity-capital, 319. 

Capitalist Production, reverses the posi- Commercial Capital represents the com- 

tions of the rational and the irrational, ' modity-capital of the producers in the 

905. hands of merchants, 318. 

Capitalist Production the basis of mod- Commercial Capital simplifies the buying 

ern commerce, 383. and selling relations of the industrial 

Capitalist System, its unsound policy capitalist, 347. 

demonstrated by the demand that all Commercial Credit, if easy relieves in- 

wealth is suddenly to be transformed dustrials and merchants from the pres- 

into money, 673. sure of bank credit, 689. 

Capitalization of rent has for its pre- Commercial Credit, its limits defined, 564. 

mise the existence of rent, 730. _ Commercial Credit, the basis of the credit 

Carey, represents ground rent as identi- system, 562. 

cal with interest, 729. Commercial Credit, two things to be 

Cattle Raising, determination of prices noted in its cycle, 563. 

in it different from that in the pro- Commercial Labor realizes values but 

duction of staple crops, 891. does not create them, 351. 

Causes of popular misconception of the Commercial Labor socially necessary and 

origin of profits, 362. productive of profit, but not of sur- 

Cereals, exported by colonies or new plus-value, 350. 

countries at low prices, sold below the Commercial Price and Price of Produc- 

international price of production, 784. tion compared, 334. 

Changes in composition of constant cap- Commercial Profit as seen on the sur- 

ital, its causes, 74. face, 333. 

Chemical Industry utilizing waste, 122. Commercial Profit determines the indus- 

Church, its role in the development of trial profit during precapitalist stages 

interest, 719. of society, 338. 



1036 



Index. 



Commercial Profit not surplus-value cre- 
ated by merchants, 330. 

Commercial Profit originally B protit 
upon alienation, 388. 

Commercial Selling Price based upon in- 
dustrial price of production, 363. _ 

Commercial Wage Workers are exploited 
as producers of profit but not of sur- 
plus-value, 346. 

Commercial Wage Workers produce 
profits but not surplus-value, 345. _ 

Commodities and Money arc capital in 
the circulation only in their relations 
to the capitalist himself, 403. _ 

Commodity, its value-composition an- 
alyzed, 40. 

Commodities of average composition and 
their prices of production, 241. 

Commodities, sacrificed for the sake of 
money, 607. 

Commodities sold above and below 
value, 185. 

Comparative Increase of Population and 
Surplus-Value, 275. 

Competition detaches surplus-value from 
its source and gives it the appear- 
ance of a self-dependent value, 965. _ 

Competition does not show how value is 
determined, 244. 

Competition, dominated by accident, 
from the individual standpoint, 964. 

Competition of Lands, determined by 
opportunities offered to capitalists for 
investment, not by the wishes of land- 
lords, 896. 

Composition of average social capital 
represented in various spheres of pro- 
duction, 203. 

Compound Interest a disguise for the 
public debt, 465. 

Compound Interest, its possibilities, 466. 

Concentration of capital and expropria- 
tion of direct producers go hand in 
hand, 257. 

Concentration of Money, enables indi- 
vidual capitalist to create a stringency, 
621. 

Concentration of merchants' capital pre- 
cedes historically the concentration of 
industrial capital, 348. 

Conflict between expansion of produc- 
tion and creation of values, 289. 

Conflict between interests of individual 
capitalists and interests of capitalist 
class destroys some capital, 297. 

Consignments to India, made purely for 
the sake of getting money advanced 
on them, 480. 

Constant Capital, can never be converted 
into revenue, 980. 

Constant Capital, from a capitalist point 
of view is cheaper than variable capi- 
tal, so far as cost price and not sur- 
plus-value is concerned, 806. 

Constant Capital, how reproduced, al- 
though the total annual product of 
values is only equal to wages plus 
surplus-value, 986. 

Constant Capital, its variation changes 
the rate of profit, 75. 

Constant Capital, its saving due to pro- 
ductivity of labor, 101. 

Constant Capital, may be released or tied 
up by depreciation or appreciation of 
its component elements, 139. 



Constant Capital, may express the same 
value in money and yet represent 
different quantities of means of pro- 
duction, 77. 

Contradiction, alleged, between Marx's 
theory of value and Average rate of 
profit, 18. 

Contradiction between fall of average 
rate of profit and accumulation of 
capital inverted in consciousness of 
capitalists, 263. 

Co-Operative Factories, a beginning of 
the new society within the old, 521. 

Cost of Circulation requires additional 
merchants' capital and enters into the 
selling price of commodities, 339. 

Cost price and Labor Cost (Value) com- 
pared, 38. 

Cost Price contains only a part, not all 
of the fixed capital, 45. 

Cost Price, its relation to the average 
rate of profit, 184. 

Cost Price formed exclusively by cap- 
ital actually consumed in production 
of commodity, 45. 

Cost Price, its false role in capitalist 
economics, 40. 

Cost Price may differ from its sum of 
values even in the case of commodities 
of average composition, 242. 

Cost Price obliterates distinction between 
constant and variable capital, 44. 

Cost prices of various lines of produc- 
tion contained in individual cost price 
of each capital, 188. 

Cost Price smaller than value and price 
of production, 195. 

Cotton Crisis 1861-1865, 143. 

Cotton Crisis 1861-1865, its history, 147 
to 160. 

Cotton Workers in- England, their condi- 
tion, 160 to 162. 

Counting the same item twice in the 
calculation of profits on social capital, 
189. 

Credit, accelerates the individual phases 
of _ circulation, 516. 

Credit as an all-around practice, 472. 

Credit, becomes meaningless as soon as 
means of production can no longer 
become capital, 713. 

Credit, by means of fictitious capital, 
may keep up the appearance of sound 
business long after returns fail, 569. 

Credit, easy during times of prosperity, 
529. 

Credit for industrial capital assured so 
long as the process of reproduction 
keeps going, 567. 

Credit, grew out of the necessities of 
shipping to far distant points, 718. 

Credit, illusions about its effects in its 
early stages, 709. 

Credit, promotes the velocity of the 
currency, 612. 

Credit, three ways in which it econo- 
mizes money, 515. 

Credit, when prevalent, increases the ve- 
locity of money circulation faster than 
the prices of commodities, and cre- 
ates the opposite condition, when 
scarce, 530. 

Credit Money, its convertibility be- 
comes problematical with the export of 
gold, 606. 



Index. 



1037 



Credit Operations, changed the character 

of English business, 585. 

Credit Swindlers, derive benefit from 
purely technical increase of loanable 
capital, 584. 

Credit and Banking System, places at 
the disposal of commercial and indus- 
trial capitalists all the available and 
potential capital of society, 712. 

Credit Mobilier, its germ contained in 
Saint Simon's credit theory, 714. 

Credit System, appears as the main 
lever of overproduction and over- 
speculation, 522. 

Credit System, centralizes money power 
in the hands of parasites, 641. 

Credit System, circulates advances of 
currency, not of capital, 624. 

Credit System, its development cre- 
ates an oversensitiveness of the whole 
economic organism, 671. 

Credit-System, its development has a 
tendency to depress the rate of inter- 
est, 425. 

Credit System, its present form starts 
out with a recognition of interest as 
legal, 706. 

Credit System, suddenly changed into 
a monetary system during crises, 631. 

Crises, exploited by money brokers, 493. 

Crises first noted in wholesale business 
and banking, not in retail business, 
359. 

Crisis, its approach noticed by small 
banker through his dealing with small 
business men, 658. 

Crisis, must be explained fundamen- 
tally by a disproportion between pro- 
duction and consumption, 568. 

Crops, may exhaust or enrich the soil, 
according to bourgeois economists, 739. 

Cultivated Land, must assist in feeding 
cattle, because there is not enough 
natural pasture, 892_. 

Cultivation, its extension does not de- 
pend upon a rise of prices, 786. 

Cultivation, when inferior upon inferior 
soils, increases the rent upon supe- 
rior soils, 823. 

Currency and Capital, their distinction 
really a difference between the money 
form of revenue and that of capital, 
524. 

Currency, as an expenditure of revenue, 
523. 

Currency, its circulation as distinguished 
from that of capital, 475. 

Currency, its total mass _ must increase 
if means of payment increase faster 
than means of purchase decrease, 543. 

Currency Principle, disproved by cotton 
trade, 649. 

Currency Principle, disproved by figures 
of bank reserves for 10 years, 647. 

Currency Principle disproved by trade 
with Asia, 648. 

Currency Principle, its refutation by the 
facts, 494. 

Currency Principle, its failure in Eng- 
land, 645. 

Currency Principle of Ricardo, teaches 
that gold and paper both depreciate 
in proportion as the currency ex- 
ceeds the normal business demand, 
643. 



D 

Demand and Supply as much regulated 
by market-price and market-value as 
they are by demand and supply, 225. 

Demand and supply in their relation to 
the law of value, 211. 

Demand and Supply, if balanced, leave 
the question open as to what deter- 
mines value, 223. 

Demand and Supply, never fully bal- 
anced, but tending towards a balance 
during a certain long period, 224. 

Demand for productive consumption is 
a demand for the production of sur- 
plus-value, 222. 

Deposits, are money-capital for the de- 
positors, 599. 

Deposits, loans given by the public to 
bankers, 555. 

Deposits, their overwhelming portion ex- 
ists _ but in the banker's books, 478. 

Deposits, three-fourths of them in Eng- 
land drew no interest before the de- 
velopment of stock banks, 591. 

Depreciation of capital in value may be 
accompanied by a rise of the rate of 
Profit, 134. 

Depreciation in the, value of labor-power 
releases variable capital, 136. 

Depreciation in value of labor-power, its 
effects analyzed, 137. 

Differences in the proportions between 
fixed and circulating capital do not 
necessarily imply differences in the 
time of turn-over, ISO. 

Differential Rent, depends also upon the 
area of cultivated land, not merely 
upon the prices of production, 774. 

Differential Rent, essential distinction 
between No. I and No. II, 798 

Differential Rent, its calculation differs 
according to whether it is made per 
acre or per capital, 799. 

Differential Rent, its different aspects 
summed up in 13 tables, 834 and fol- 
lowing. 

Differential Rent, its general rule is that 
the market-value always stands above 
the total price of production, 773. 

Differential Rent, its law identical in 
rent No. I and No. II, 903. 

Differential Rent, its law independent 
of the correctness of the assumption, 
that rent must arise from a price of 
production which is below the regulat- 
ing average, 867. 

Differential Rent, its parallelism with the 
succession of fertilities, 832. 

Differential Rent, its two forms mu- 
tual limits for each other, 856. 

Differential Rent, made up of products 
or of money, it shows different ten- 
dencies, 800. 

Differential Rent, may arise by a suc- 
cession from good to worse soil, or 
from bad to better soil, 771. 

Differential Rent, may be produced 
even upon the worst soil, 857. 

Differential Rent, may rise with a fall- 
ing rate of profit, 796. 

Differential Rent, none produced without 
an investment of capital, 824. 

Differential Rent, two additional ways, 



1038 



Index. 



in which it may arise upon the worst 
soil, 860. 

Differential Rents, proportioned, not to 
the degrees but to the differences of 
fertility, 833. 

Differential Rent No. I, its modification 
also gives rise to a new development 
of differential rent No. II, 831. 

Differential Rent No. I, its tabular for- 
mulation, 764. 

Differential Rent No. I, the historical 
basis, from which modern ground rent 
starts out, 791. 

Differential Rent No. II, altered ac- 
cording to whether fertile or poor 
land is used, 795. 

Differential Rent No. II, conclusions 
drawn from its analysis, 851. 

Differential Rent No. II, conditioned 
upon differential rent No. I, 793. 

Differential Rent No. II, four cases of 
its fluctuation with a falling price of 
production, 812 to 814. 

Differential Rent No. II, investment of 
capital successively upon the same 
piece of land with varying rates of 
productivity, 787. 

Differential Rent No. _ II, must be con- 
verted into differential rent No. I, be- 
fore differential results caii be ascer- 
tained, 844. 

Differential Rent No. II, one of its pe- 
culiarities, which distinguish it from 
differential rent No. I, 808. 

Differential Rent No. II, three cases, 
797. 

Differential Rent No. II, with a constant 
price of production, 801. 

Differential Rent No. II, with a fall- 
ing price of production, 810. 

Differential Rent No. II, its decrease in 
grain and money with a falling price 
of production, 811. 

Differential Rent No. II, three ways m 
which it differs from differential rent 
No. I, 825. 

Differential Rent No. II, with a falling 
price of production and an increasing 
rate of productivity of the additional 
capital, may be produced eventually 
upon the worst soil, 821. 

Differential Rent No. II, with a rising 
price of production, 828. 

Discount, a means of balancing the credit 
given by the credit taken, 503. 

Distribution, its interrelations with pro- 
duction, 1024. 

Dividends do not help to level the rate 
of profit, because they represent a 
lower than the average rate, 282. 

Dividends, their quarterly payment 
causes a fluctuation in the circulation 
of bank notes, 618. 

Dress Makers, their poor health, 114. 

Dress Makers, their unhealthy work 
rooms, 113. 



East India Company, its drafts a tribute 
levied on India, 683. 

Economic laws to be understood as ap- 
proximating tendencies, 206. 

Economic Romanticism, 467. 



Economies gained in the generation of 
power by machinery, 110. 

Economists admit overproduction of com- 
modities but deny overproduction of 
capital, 301. 

"Economist," tries to prove that the 
movements of loan capital are identical 
with those of industrial capital, 688. 

Economists confuse merchants' capital 
with productive industrial capital, 381. 

Effects of struggle of antagonistic capi- 
talist interests shown in the destruction 
of values, 298. 

Engels, his share in Volume III, 12, 13, 
14. 

Engels' Conundrum for economists, 18. 

English Economists, look upon export of 
precious metals purely from an Eng- 
lish point of view, not from an inter- 
national one, 579. 

English Farm Laborer, his abject condi- 
tion, 740. 

Exchange, between countries with differ- 
ent standards of metal, its rate is de- 
termined by the fluctuations in the rel- 
ative value of these metals, 695. 

Exchange, its rate fluctuates according 
to the shifting of the international 
balance, 674. 

Exchange of commodities at their values 
represents a lower stage of production 
than exchange at prices of production, 
208. 

Exchange, its rate affected by the rate 
of interest, 687. 

Exchange, _ its rate may be influenced by 
a circuitous international transaction, 
679. 

Excrements of Production and Consump- 
tion, 120. 

Excrements of Production, used in econ- 
omy, 95. 

Expansion of Capitalist Production, 
necessary in order to prevent excessive 
accumulation of money-capital, 489. 

Expense, for the appropriation of sur- 
plus labor, reduced through cheapening 
of raw materials, 96. 

Exploitation may yield no surplus-value 
at all, or realize only a part of it, 
286. 

Exports, directly affect the rates of ex- 
change, if they transport goods, which 
require return payments, 677. 



Factory Reports, on cotton industry, 146. 
Factory Reports, on fluctuations of 

prices, 145. 
Failings of capitalist economists in at- 
tempt to solve mystery of falling rate 

of profit, 250. 
Fall in price of commodities accompanied 

by a relative increase of mass of profit, 

264. 
Fancies of economists concerning the 

self -producing faculties of capital, 464. 
Fictitious Capital, deprived of one of its 

sources^ by the completion of the Suez 

Canal, 483. 
Financial Business first developed out 

of international commerce, 374_. 
Financial Capital, assumes function of 



Index. 



1039 



industrial money-capital in a part of 
the circulation, 371. 

Financial Capital, has not the special 
form of circulation which commercial 
capital has, 379. 

Financial Capital performs function of 
receiving and paying money, 372. 

Fireman's attempted solution of the Con- 
tradiction, 24. 

Fixed Capital, effects of its relative over- 
production, 141. 

Fixed Capital, its production and aug- 
mentation runs ahead of that of or- 
ganic raw materials, 140. 

Floating Capital, a form of loan capital 
which retains its loaning form only for 
a short period, 582. 

Fluctuations of Business advantageous 
for the initiated, 496. 

Freedom, does not begin, until the point 
is passed, where labor under the com- 
pulsion of necessity and of external 
utility is required, 954. 

Foreign Trade, by cheapening the ele- 
ments of constant capital, tends to 
check the falling tendency of the rate 
of profit, 278. 

Foreign Trade develo.ps the capitalist 
mode of production in the home coun- 
try, 280. 

Formulae of commercial capital compared 
with those of producers' commodity- 
capital, 321. 

Formulae showing variations in the rates 
of surplus-value and profit, 68, 69, 70. 

Fullarton, his contrast between the de- 
mand for additional loan capital and 
additional currency not correct, 538. 



G 

Gambling in fictitious capital yields ac- 
tual capital, 561. 

Ground Rent and Interest, their rates 
have the same general tendency to 
fall with the rate of profit, 284. 

Ground Rent, due in the last analysis 
to unpaid productivity of the soil, 
792. 

Ground Rent, due to ownership of land, 
not to that of capital, 757. 

Ground Rent, effect of a doubling of the 
acreage upon its mass and rate, 775. 

Ground Rent, errors to be avoided in 
its study, 743. 

Ground Rent, falsely represented as a 
deduction of money from products, 
916. 

Ground Rent, in the form of labor rent, 
represents unpaid surplus-labor, 917. 

Ground Rent, its amount determined by 
the independent development of so- 
cial labor, in which it does not take 
part, 746. 

Ground Rent, its dependence upon the 
cost price and the price of production, 
752. 

Ground Rent, its most elementary con- 
ception, 725. _ 

Ground Rent, its peculiarity is that the 
landlord acquires more power to ap- 
propriate surplus-values in proportion 
as the capitalist system develops, 749. 



Ground Rent, its seeming contradiction 
to the theory of value, 908. 

Ground Rent, its total amount may rise 
while its individual parts may fall, 
767. 

Ground Rent, justified by partisan econo- 
mists on the ground of its existence, 
732. 

Ground Rent, may disappear when the 
capitals of the same line, that are not 
using a monopolized natural power, are 
able to introduce improvements by 
which their cost price is reduced to 
that of the capital producing ground 
rent, 759. 

Ground Rent, the difficulty in its analy- 
sis consists in explaining the excess of 
agricultural profit over the average 
profit, 909. 

Ground Rent, the Marxian analysis starts 
out from the assumption that_ agricul- 
tural prodvicts are sold at their prices 
of production, like industrial commod- 
ities, 750. 

Ground Rent, the normal form of sur- 
plus-production in feudal days, 910. 

Gold, disliked in Scotland, 661. 

Gold, does not enter into consideration 
of English wholesale trade, 619. 

Gold, its discovery in recent times has 
raised the rate of interest, 623. 

Gold, its drain does not necessarily bring 
on a crash, 667. 

Gold, its excessive worship by bankers, 
535. 

Gold Exports, do not touch prices of 
commodities, but of securities, 646. 

Gold Reserve, its expansion and con- 
traction in connection with a fall or 
rise of interest an indicator of busi- 
ness conditions, 504. 

Good Government, an alleged article of 
export, 684. 

H 

Heat, saved when price of coal increased, 

117. 
Hoards, their different forms, 376. 
Horner, Leonard, exposes violations of 

law by English capitalists, 107. 



Increase of number of laborers with a 
falling rate of profit, 256. 

Increasing Deterioration of the position 
of the commercial proletariat, 355. 

Individual and Society in their rela- 
tions to supply and demand, 228. 

Individual commodity, a fall in its price 
gives no clue to the rate of profit, 269. 

Individual Commodities, contain less and 
less unpaid labor as capital is con- 
centrated, 265. 

Individual commodities must be consid- 
ered in their relation to the total cap- 
ital which produces them, 268. 

Industrial Profit, determines agricultural 
profit, 766. 

Industrial Capital does not become a 
commodity as capital in the form of 
commodity-capital or money-capital. 
402. ' 



lO-l-O 



Index. 



Industrial Capital, its turn-over limited 
by the time of circulation and the time 
of production, 3:25. 

Insanity of Capitalist Production, shown 
in the conception of wages as interest, 
oiS. 

Intermingling of production and circu- 
lation falsities their characteristic 
marks of distinction, 57. 

Interrelations between quantities of_ la- 
bor, of raw and auxiliary materials, 
machinery and other li.xed capital, 291. 

Interrelations of mass and rate of profit 
and mass and increase of capital, 290. 
I Interest-Bearing Capital, an antediluvian 
form of capital, (39t3. 

Interest-Bearing Capital, attempts to sub- 
ordinate it to commercial and in- 
dustrial capital during transition to cap- 
italism, 7US. 

Interest-Bearing Capital, _ distinguished 
from net profit producing capital by 
capitalists employing their own capital 
only when the ownership is vested in 
different individuals, i37. 

Interest-Bearing Capital externalizes the 
relations of cajjital, 459. 

Interest-Bearing Capital, gives to all rev- 
enue the appearance of interest on cap- 
ital, 546. 

Interest-Bearing Capital g^ves to capi- 
tal the appearance of a mere thing, 
460. 

Interest-Bearing Capital, its character as 
a separate category explained, 441, 
442. 

Interest-Bearing Capital, its owner makes 
a commodity of it as capital, 404. 

Interest-Bearing Capital, its peculiar cir- 
culation, 400. 

Interest-Bearing Capital, its quantitative 
and qualitative character analyzed, 443. 

Interest-Bearing Capital, its rate of profit 
determined like that of industrial cap- 
ital, 420. 

Interest-Bearing Capital places interest 
above profit, 461. 

Interest-Bearing Capital, separated even 
by capitalist who employs his own 
capital from producing capital, 437. 

Interest-Bearing Capital shows its char- 
acter as a common capital of a class, 
433. 

Interest-Bearing Capital, surrounds itself 
with occult faculties, 715. 

Interest as a category alien to the 

-»■ movements of industrial capital itself, 
434. 

Interest, a portion of the profit pro- 
duced by a capital, 399. 
f Interest expresses the self-expansion of 
money-capital, 418. 

Interest, its average rate not a ten- 
dency like that of average profit, 430. 

Interest in the Middle Ages, 717. 

Interest, its differences for different 
kinds of securities do not militate 
against its uniformness within a cer- 
tain class of securities, 429. 
Interest, its general rate appears as a 
uniform magnitude and not as a shift- 
ing one like the average rate of profit, 
428-429. 
Interest, its general rate fixed to a 



far greater degree by the world mar- 
ket than that of average profit, 432. 

Interest, its high rate is not a cause 
of a high rate of profit, 500. 

Interest, its legality recognized by me- 
dieval academies, 697. 

Interest, its maximum limit marked by 
the profit itself, 421. 

Interest, its rate highest during crises, 
424. 

Interest, its rate inversely proportional 
to the degree of industrial develop- 
ment, so far as interest depends upon 
profit, 423. 

Interest, its rate may be raised through 
exceptional transactions, such as in- 
ternational state loans, 675. 

Interest, its rate may leave the aver- 
age rate of profit untouched but not 
the industrial profit, 502. 

Interest, limit of its rate determined 
by the supply and demand of money- 
capital, 495. 

Interest may rise to a point where it 
swallows the greater portion of the 
profit, 499. 

Interest, places the process of produc- 
tion in the light of not being op- 
posed to labor, 449. 

Interest, relation of its rate to the 
prices of commodities, 691. 

Interest, relation of its rate to the value 
of money, 690. 

Interest rises and falls with the total 
profit, if its relation to the profit is 
fixed, 422. 

Interest should not be called the price 
of capital, 417. 

Interest, supposed to exist even if money 
did not exist, 495. 

Inventions bring economies, 124. 

Imports, their relative preponderance 
over exports measured on the whole 
by metal reserves in central banks, 
665. 

Improvements incorporated by tenants 
in the soil become property of the 
landlord and are added as interest on 
capital to ground rent, 726. 

Improvements in the soil, their appro- 
priation by the landlord an obstacle 
to rational agriculture, 727. 

Improvements of machinery permit econ- 
omies in exploitation, 97. 

Irish Land Bill, tried to compel land- 
lords to pay tenants for improvements, 
734. 



Labor, Accumulated, (Capital), does not 
create value, 23. 

Labor and Surplus-Labor, their relative 
and absolute grjjwth, 254. 

Labor, nifterence between simple and 
complicated, does not affect the inten- 
sity of exploitation, 168. 

Labor, does not produce value in its 
capacity of wage labor, but as labor 
generally, 958. 

Labor, illustration of a case in which 
the productivity decreases with a de- 
crease of constant capital, 71. 

Labor, its productivity altered by 



Index. 



104 1 



changes in the composition of capital, 
65. 

Labor, its productivity grows faster than 
the mass and value of the machinery 
used by it, 129. 

Labor, its productivity in one indus- 
try brings economies in another, 98. 

Labor, its productivity may increase ab- 
solutely while declining relatively, 794. 

Labor, paid and unpaid, only source of 
surplus-value, 22. 

Labor performed in mere circulation 
adds no value to commodities, 341. 

Labor, taken as a use-value, is compared 
by vulgar economy with land and 
other means of production in their 
capacity as use-values, regardless of 
their particular social relations, 960. 

Labor, the continually self-renewing 
means of producing revenue, 957. 

Laborer, his life and health squandered 
to save profit, 103. 

Laborers oppose careless capitalists, 109. 

Laborers, powerless to enforce sanitary 
conditions, 115. 

Labor-Power, _ a rising demand for it 
cannot in itself be a cause for a ris- 
ing rate of interest, 602. 

Labor-Power, a rising demand for it 
may raise the rate of interest by rais- 
ing the demand for money-capital, 
603. 

Labor-Power employed decreases on an 
average in proportion as the rate of 
relative surplus-value is raised, 274. 

Labor-Power, its double role as a value 
and a producer of value, 41. 

Labor Rent, a form of rent, under which 
the direct producer works with his 
own means of production, 918. 

Labor Rent, clearly shows both the sur- 
plus labor and the natural productive- 
ness of labor applied to the soil, 920. 

Labor Rent, clearly shows identity of 
surplus-value with unpaid labor, 919. 

Land, a rise in its price may be iden- 
tical with a fall in the price of labor- 
power, 737. 

Land, as soon as appropriated in its 
entirety, its price generally deter- 
mined by that of the cultivated area, 
782. 

Land, cases in which its price may 
rise and their relation to interest and 
rent, 902. 

Land, its monopoly a historical premise 
of capitalist production, 723. 

Land, its price an element in the cost 
price of the producers, but not an 
element in the price of production of 
the product, 944. 

Land, its price consumes capital, 940. 

Land, its price does not represent an 
investment of agricultural capital, 942. 

Land, its price has a tendency to rise, 
even independently of the movement 
of ground rent, because the rate of 
profit and the rate of interest have 
a tendency to fall, 731. 

Land, its price may rise so high as to 
make production impossible, 943. 

Land, its relation to labor and value, 
948. 

Land and Labor, their material forms 



common to all modes of production, 
949. 

Land, does not create value, 950. 

Land, its private ownership not con- 
cerned with the actual process of pro- 
duction, 955. 

Land, with the worst kind of soil, differ- 
ent ways in which a cai)italist may get 
access to it without paying rent, 871. 

Land, with the worst kind of soil, must 
pay more than the average price of 
production before it can be rented, 
879. 

Land, yields a rent, not because capital 
has been invested, but because the in- 
vestment of capital makes land more 
productive, 866. 

Landlord, does not perform any pro- 
ductive function like the industrial 
capitalist, 748. 

Landlord, his position as a mere col- 
lector of rent, without any active ca- 
pacity in the process of production, 
a specific outcome of capitalist de- 
velopment, 1029. 

Land Monopoly, does not _ create sur- 
plus-value, but transfers it from the 
industrial capitalist to the landlord, 
758. 

Law of Average Rate of Profit rules 
also these spheres of production, which 
do not contribute directly or indirectly 
to the laborer's wants, 311. 

Law of Increased Productivity does not 
apply absolutely to capital, 308. 

Law of Value regulates prices of pro- 
duction, 212. 

Law, that profits are proportioned as the 
magnitudes of capitals applies only to 
capitals of the same organic composi- 
tion with the same rate of surplus- 
value and the same time of turn-over, 
181. 

Lease, its long duration .profitable for 
the tenant, who invests capital suc- 
cessively upon the same land, 788. 

Legislation, if unsound, may intensify 
a money crisis, 575. 

Lending money means to remain its 
owner, 415. 

Lexis' explanation of Contradiction an- 
alyzed by Engels, 19, 20. 

Loanable Capital, becomes abundant com- 
pared to the productive capital so long 
as the scale of production remains the 
same, 573. 

Loanable Capital, by itself is not re- 
productive capital, 593. 

Loan Capital, a demand for it and its 
supply would be identical with a de- 
mand and supply of capital in general, 
if there were no money lenders, 609. 

Loanable Capital, to what extent its ac- 
cumulation coincides with actual ac- 
cumulation, 580. 

Loan Capital does not produce any in- 
terest in the hands of its owner, 435. 

Loan Capital, influenced by the de- 
mand and supply of commodity-capi- 
tal, 605. 

Loan Capital, its interests opposed to 
those of industrial capital, 604. 

Loan Capital, its rapid development a 
result of actual accumulation, 590. 



1042 



Index. 



Loan Capital, its reflux assumes the 
form of return payments, 405. 

Loan Capital, its return with interest ap- 
pears on the surface as a return with- 
out the intervention of production, 
410. 

Loan Capital, its superabundance may- 
express a stagnation of industrial cap- 
ital or a relative independence of com- 
mercial credit from banking credit, 
581. 

Loan Capital, its movements on the 
whole tend in the opposite direction 
from those of industrial capital, 574. 

Loan Capital, its use-value is its func- 
tions as capital, 413. 

Loan Capital must pass through the 
process of reproduction in order to 
■produce interest, 409. 

Loan Capital serves as capital only in 
the hands of the borrower, 416. 

Loan Capital, when identical with indus- 
trial capital, 565. 

Loan Capital, when identical with in- 
dustrial capita!, must be employed for 
reproduction, 566. 

Loans of Money, may serve as money 
or as capital, 507. 

Loans, when capital and when mere cur- 
rency, 538. 

Location of Land, a factor in differen- 
tial rent as well as fertility, 762. 

Loria, Achille, Exhibits his ignorance in 
economics, 31. 

Loria, Achille, tries to rob Marx, 28. 

Luther attacks in usury an effect, not a 
cause, 463. 

M 

Machines become absolutely dearer but 
relatively cheaper with the productiv- 
ity of labor, 305. 

Machines, the introduction of new im- 
provements analyzed in their effects 
upon the value of commodities, 307. 

Manuscript of Volume III incomplete, 
11, 12, 13. 

Market-Value and Individual Value of 
commodities regulates market-price 
under the pressure of supply and de- 
mand, 217. 

Market-Value and Market Price differ 
when social demand and supply do not 
balance, 318. 

Market-Value and Price of Production 
closely related through market prices, 
234. 

Market-Value changes with market con- 
ditions, 213. 

Market-\'alue is determined by the value 
of commodities produced under aver- 
age conditions, 215. 

Market-Value is the average value of 
commodities produced in a certain 
sphere, 210. 

Market-Value, its fluctuations due to 
supply and demand of commodities 
produced vmder higher or lower con- 
ditions than the average, 216. 

Marx, difference of his theory of 
ground rent from that of Ricardo, 
761. 

Marx's Method dialectic, not fixed, 24. 



Mercantile Theory the first theoretical 
treatment of modern modes of pro- 
duction, 396. 

Merchant may sell for productive or for 
individual consumption, 360. 

Merchants' Capital defined, 314. 

Merchants' Capital individualizes some 
special functions of industrial capital, 
380. 

Merchants' Capital, inspires false con- 
ceptions of profits of industrial capi- 
tal, 270. 

Merchants' Capital, its historical role 
illustrated by Venetians, Genoese, 
Dutch, 387. 

Merchants' Capital, its movements are 
always those of industrial capital with- 
in the sphere of circulation, 358. 

Merchants' Capital, its participation in 
the formation of the average rate of 
profit lowers this rate, 337. 

Merchants' Capital, its precapitalist de- 
velopment creates a tendency towards 
the production of exchange-values, 390. 

Merchants' Capital, its turn-over com- 
prizes a more limited economic area 
than that of industrial capital, 364. 

Merchants' Capital, its turn-over may 
promote the turn-overs of different 
lines of production,_ 326. 

Merchants' capital lives only in the 
sphere of circulation, 324. 

Merchants' Capital, may sell and buy 
at the same time, 327. 

Mercharits' Capital plays a determining 
role in the formation of the aver- 
age rate of profit in proportion to its 
pro rata magnitude in the total capi- 
tal, 335. 

Merchants' Capital older than the cap- 
italist mode of production, 383. 

Merchants' Capital releases reserve cap- 
ital of manufacturer, 328. 

Merchants' Capital, the analysis of the 
influence of its turn-over reveals phe- 
nomena which seem to contradict the 
law of value, 369. 

Merchants' Capital, the rotation of its 
constant and variable parts analyzed. 
349. 

Merchants' Capital, the CjUantity not 
serving in any function increases with 
the advance of capitalist production, 
367. 

Merchants' Capital, the velocity of its 
turn-over inversely proportioned to its 
absolute total magnitude, 365. 

Merchants' Money-Capital and its func- 
tion, 322. 

Merchants' Profit equal to the difference 
between purchase price and selling 
price, 332. 

Merchants' Wealth concentrates money 
to the extent that production is unde- 
veloped, 384. 

Metairie System (Share Farming), a 
transition between the older forms of 
rent and capitalist rent, 933. 

Metal Reserve, comparison of its move- 
ments with those of the money mar- 
ket, 693. 

Metal Reserve in Bank of England, did 
no good to business during crisis be- 
fore repeal of Bank Act, 660, 



Index. 



1043 



Metal Reserve, increased in all central dium of circulation, whether it be cur- 
banks of Europe and America since rency or capital, 526. 
1844, 664. Money, the same pieces may serve as 

Metal Reserve, its draining _ generally means of transfer of far larger 

a symptom of a change in foreign amounts of capital, 554. 

commerce, 669. Money Panic, a forerunner of a crisis. 

Metal Reserve, its fluctuations must be 668. 

considered together with all other cle- Money Rent, in its developed form only 

ments, 670. the surplus above the profit is turned 

Metal Reserve, its various functions over to the landlord, 929. 

enumerated, 666. Money Rent, in its pure form absorbs 

Middle Age, relation of country and the whole surplus product, 927. 

town described, 930. Money Rent, its advent accompanied 

Mill, John Stuart, his illogical cclccti- and preceded by the formation of a 

cism, 653. class of propertyless laborers, 928. 

Mining Rent, regulated by agricultural Money Rent, makes the price of land, 

rent, 898. or capitalized rent, and the sale of 

Modes of Production, their distinctions ^^^^' regular elements of economy, 

and equalities not sufficiently grasped ,, t^ • , , 

by most economists, 1023. Money Rent, requires that products 

Money-Capital, a demand for it may in- should be made for the market, 926. 

crease for reasons which are inde- Money irade supplies technical means 

pendent of the rate of profit, 501. JO"" the reduction of hoards to a mm- 

Money-Capital, causes which led to an t,,-""^™' ?"®- . . , 

increased demand for it, 497. Monopoly mtereferes with normal expres- 

Money, its accumulation expresses in ^T^ °,^ ^"^ °''^^^^'^^\^^t v ^ .u k 

part the fact that all money, into Monopoly Price, does not abolish the ab- 

which industrial capital is trans- f'^^e limits of value, but merely 

formed during its cycles, assumes the ^ansfers a portion of profit from one 

form of borrowed money, 594. tv/t ♦ fnotner luod. 

Money-Capital, its accumulation may Mortality Statistics of laborers, 110, 113. 

arise from extraordinary imports of -^ 

gold, 589. ■"' 

^?kfo^u??5l'' '^' ^'^^^^"^ ''°'*'°" '' ^'" National Basis of Production is self- 
Money, 'its use reduced to a minimum Np'^nnpl'^'n^h^' it«f ^;^,.;f,i , 

in wholesale trade, 614. m\nus ^S appears as a 
Money-Capital, may be affected by gold ■\r„,-;„,,„i' rioKV r^o„,^^„^ „f ■*. ■ ^ ^ 
exports,^nl'y to the extent that fixed ^^^^^^^ a luctuatfon^n the r^t.'^nf'ff 
capital, which cannot be exported, pre- ?g"ft a ttuctuation m the rate of in- 
vents a return of available funds, 571. ■Nrot,-,,-oi' v^r.^r^^„ „.-„j ^ 1 *-i • j 
Money-Capital, the same amount of it ^at^ral Jf'^°™J' Produces both mdus- 

may be loaned with very different Na\Tral ^Law Yf^Ecoic'^EquI^^^^^^ 

quantities of the medium of circula- the sale of commodities at their value 

tion, 498. 221 

Money-Capitalist relinquishes in loan Natural Power, its application to indus- 

cap.tal the faculty of the money to ^ joes not necessarily create a sur- 

M^,^^ "r \^^ ^''•'■^°! ^'° ■: V ^ Pl^s profit that may be transformed 

Money Centers give to capitalist produc- into ground rent, 754. 

tion a more topsy-turvy appearance Natural Power, when monopolized and 

i\/r " IV? ,®l"^'ur!"*^^P' ^??- • used to increase the productivity of 

Money-Market, obliterates all systematic labor, as an exception, creates ground 

terminology, 583. rent 755 

Money, a comparatively insignificant Natural Price a classic name for cost 

quantity admitted to be the pivot of price 51 

capitalist production, _ 672. Nature" and Society in their role as 

Money as potential capital makes a com- boundaries of the forces of social pro- 

modity_ of capital, 398. duction, 283. 

Money, its mass as a medium of circu- Nature, its wealth appears as a natural 

lation determined by its function as a fertility of capital, 126. 

medium of purchase and of payment, New Developments of Capitalism since 

,^527. the death of Marx, 518. 

Money, how it becomes interest-bearing New Methods of Production, in order 

capital, 401. to represent a real increase in pro- 
Money, loaned by bankers is a part of ductivity, must reduce wear and tear, 

their capital, 533. 306. 

Money loaned and returned without an Notes, limit of their issue, 616. 

increment of surplus-value is not in- Notes, their circulation compared to that 

terest-bearing capital, 412. of gold, 615. 

Money loaned as capital must perform Notes, their circulation independent of 

the productive function, 411. the sjold reserve and the will of the 

Money, made dear in order to make bank's, 617. 

commodities cheap, 656. Notes, their circulation ruled bv the same 

Money, performs its function as a me- lav/s as that of currency. 613. 



I044 



Index. 



Object of Volume III, 37. 

Organic _ Composition of different cap- 
itals, its differences are independent 
of the absolute magnitude of those 
capitals, 176. 

Original assumption concerning deter- 
mination of cost price modified, 194. 

Overdrawing of Credit by means of 
bills of consignment, _ 486. 

Overdrawing of Credit intensifies crises, 
4S7. 

Overproduction does not signify that 
more is produced than the wants of 
the great masses require, 303. 

Overproduction of Capital signifies over- 
production of means of production, 
300. 

Overproduction signifies that more com- 
modities have been produced than can 
be sold at a profit under the conditions 
of Capitalism, 303. 

Overstone, his confusion between money 
and capital, 509. 

Overstone, his mistaken conception of 
fixed and circulating capital, 508. 

Overstone, his one-sided conception of 
capital as purely money-capital, 512. 

Overstone, sticks to his crazy policy even 
after the Bank Act bad to be repealed 
from necessity, 662. 



Periodic variations of different influ- 
ences of capitalist production side by 
side and successively, their conflict 
leads to crises, 292. 

Periods of Stringency, what is missing 
in them, money or capital? 544. 

Physiocrats, consider agricultural produc- 
tivity as the basis of the production 
of surplus-value and of the develop- 
ment of capital, 912. 

Physiocrats, opposed to the mercantile 
system, 911. 

Playroom for local rate of profit, 200. 

Potential Money-Capital in the form of 
a hoard, 373. 

Precious Metals, their movements on the 
world _ market determined by the in- 
ternational exchange of commodities, 
377. 

Price of Production altered in three 
cases, 196. 

Price of Production at which industrial 
capitalist sells his commodities is 
smaller than the merchant's price of 
production, 336. 

Price of Production, causes of its va- 
riation analyzed, 240. 

Price of Production defined, 186. 

Price of Production has a varying ele- 
ment, 235. 

Prices, their fluctuations take place 
within relatively narrow limits and 
compensate each other in the long 
run, 1002. 

Primitive Economy, combines agricul- 
tural and industrial labor, 741. 

Private Property, can act as an obstacle 
against access to land, but cannot pre- 



vent the making of surplus-profits for 
the benefit of the industrial capitalist 
after access to land has been gained, 
888. 

Private Property in Land, a barrier to 
the profitable employment of capital 
upon land, 855. 

Product, its distinction as a gross and 
net product, 978. 

Production, its scale may be altered with- 
out affecting the rates of exchange, 
685. 

Production, may be expanded without 
raising the rate of interest, 678. 

Productive and unproductive laborers of 
the industrial capitalist, 353. 

Productivity, its increase by means of 
additional capital, if accompanied by 
different results upon different soils, 
causes a change in their differential 
rents, 826. 

Products, raised by the help of a natural 
power that costs nothing, rise in price, 
if this power alone cannot supply the 
demand and new capital is needed to 
produce the missing supply, 865. 

Productivity, the strongest lever in the ■ 
effort to raise it is the aim to reduce 
the cost price, 1027. 

Profit and interest in developed and 
undeveloped countries not comparable 
offhand, 251. 

Profit, alleged by vulgar economists to 
arise from the antagonism between in- 
terest and profit of enterprise, 448. 

Profit an offspring of the total advanced 
capital, 49. 

Profit, cases in which rates of different 
capitals are equal and uneq'ual, 84. * 

Profit, causes determining its rate / 
summed up, 439. 

Profit, fluctuations in its rate may take 
place independently of changes in the 
organic composition or absolute mag- 
nitude of capital through a rise or fall 
in the value of capital, 166. 

Profit, its average rate determined by 
more fundamental causes than that 
of interest, 431. 

Profit, its mass cannot be determined by 
the rate of profit and the mass of 
total capital alone, 262. 

Profit, its rate a function of several vari- 
able magnitudes, 73. 

Profit, its rate always smaller than the <^ 
rate of surplus-value, 64. 

Profit, its rate does not reveal the in- 
ternal differences of various capitals, 
61. 

Profit, its rate falls when constant cap- 
ital increases and variable capital de- 
creases, 72. 

Profit, its rate for different capitals 
proportioned inversely as their periods 
of turn-over, 87. 

Profit, its rate may be the same and 
yet express different rates of surplus- 
value, 82. 

Profit, its rate may rise or fall inversely 
as the rate of surplus-value, 83. 

Profit, its rate not affected by the mere 
difference in the proportions between 
fixed and circulating capital, 179. 

Profit, its rate rises when the variable 



Index. 



1045 



capital increases faster than the total 
capital, 76. 

Profit, its rate varies through econo- 
mies in constant capital or fluctuatioris 
in the price of raw materials, even if 
wages and rate of surplus-value re- 
main unchanged, 125. 

Profit, reality of its high rate demon- 
strated, 91. 

Profit, that portion, which is not con- 
sumed as revenue is accurnulated _ as 
money-capital only when it is not im- 
mediately able to find a place of invest- 
ment, 595. 

Profits in different sfiheres of produc- 
tion are not proportional to the mag- 
nitude of the different capitals in- 
vested in them, 177. 

Profit, not necessarily, legitimate sur- 
plus-value, btit a result of cheating, 
etc., 963. 

Profit of Enterprise, antagonistic to in- 
terest, 445. 

Profit of Enterprise, its magnitude d^.- 
termined by the rate of interest, if 
gross profit is equal to net profit, 438. 

Profit of Enterprise, not in opposition to 
wage laborer, but only to interest, 446. 

Profits of Enterprise, a fruit of indus- 
trial function as . distinguished from 
interest as a fruit of ownership of 
money-capital, 440. 

Profits of Enterprise, no standard of 
measure for the rate of interest, 601. 

Protection to laborers abolished by Eng- 
lish laws, 108. 

Proudhon did not understand the nature 
of -capital, 408. 

Proudhon, his _ conception of the role 
of money-capital, 406. 

Proudhon, his conception of value does 
not reveal the origin of surplus-value, 
407. 

Provincial Banks, have their agents in 
the metropolis, 477. 

Public Funds, their depreciation through 
fraudulent speculation, 491. 



Quandary of capitalists during crises, 
whether they should drop cash pay- 
ments or production, 633. 

B 

Railroad Stocks, a means of fraudulent 
banking, 484. 

Ramsay classes merchants' capital with 
productive capital by confounding it 
with the transportation capital, 329. 

Rate of exchange, differs from Rate of 
Interest in form, 683. 

Rate of Profit as a point of departure 
for historical inquiry into the trans- 
formation of surplus-value into profit, 
56. 

Rate of profit, calculated for one year 
and for several years, 266. 

Rate of Profit calculated on the total 
capital invested, 55. 

Rate of Profit falls, not because labor 
is less exploited, but because less la- 



bor is employed in proportion to the 
employed capital, 288. 

Rate of Profit is particularly important 
for all new investments of capital, 304. 

Rate of Profit, its fall and the over- 
production of capital are caused by the 
same conditions, 296. 

Rate _ of Profit, its fall cannot be ex- 
plained by a rise in the rate of wages, 
except in particular cases, 281. 

Raw Material, its good quality deter- 
mines in part the rate of profit, 99. 

Raw Materials, no control in their pro- 
duction, 142. 

Relation between changes in the cost 
price of individual commodities and 
the average rate of profit, 202. 

Relation between Magnitude of individ- 
ual capitals and average rate of profit, 
191. 

Relative Decrease of variable capital and 
profit accompanied by an absolute in- 
crease of both, 261. 

Relative Overpopulation, 256. 

Relative Surplus-Population increases be- 
cause productivity of labor increases, 

V 260. 

■Release of capital defined, 132. 

Renewal of due bills, kept secret, 625. 

Rent, as a surplus above profit, its his- iL, 
torical genesis, 931. , 

Rent, develops as money-rent only on 
the basis of a production of commodi- 
ties, 747. 

Rent, different heads under which it is 
analyzed, 843. 

Rent, frequently absorbs not only the 
surplus product, but even a part of 
the necessary product of the tenant, 
733. 

Rent, from an absolute point of view, is 
a result of an increased investment 
of capital in the soil, regardless of 
whether productivity increases, falls, 
or remains constant, with rising, fall- 
ing or constant prices, 827. 

Rent, in the great majority of all possi- 
ble cases it rises per acre and as a 
total, as a result of the investment 
of additional capital, 841. 

Rent, its average per acre and per capi- 
tal may fall while the total rental may 
increase, 778. 

Rent, its general interrelations over- 
looked by economists, 781. 

Rent, may be derived from a monopoly 
price of product or from a monopoly 
of land, 900. 

Rent, may rise through a larger invest- 
ment of capital without an increase of 
the rate of _ productivity, 802. 

Rent, not considered by classic economy 
with reference to the quantity of land, 
but rather with reference to the prod- 
uct or to capital, 904. 

Rent, sometimes higher for small es- 
tates than for large ones, 738. 

Rent, which is a deduction from _ wages 
or from the average profit is not 
rent in the economic meaning of the 
term, 877. 

Rent, with additional -apital, increases 
absolutely upon all classes of soil, but 



1046 



Index. 



not in proportion to the additional 
capital invested, 804. 

Rental, its total amount corresponds 
in the long average to the absolute 
productivity of agriculture, 780. 

Rental, may increase while prices are 
stationary, 776. 

Rent in Kind, a modern survival of feu- 
dal economy, 915. 

Rent in Kind, a modification of labor 
rent, 922. 

Rent in Kind, means that surplus labor 
is no longer performed under the 
direct supervision of the lord, 923. 

Rent in Kind, not determined by any 
profit, 925. 

Rent in Kind, permits some surplus labor 
for the benefit of the direct producer, 
924. 

Rents in Europe, fell as a consequence 
of the competition of India*and Rus- 
sia in wheat raising, 842. 

Reproduction, its return through the va- 
rious departments of consumption, 976. 

Reserve Fund, its double function as a 
treasury for national and international 
payments, 536. 

Reserve Funds of Banks, .express on an 
average the magnitude of national 
hoard, 552. 

Reserve Fund of Banks, largely ficti- 
tious like other deposits, 556. 

Revenue, all of it is _ convertible into 
deposits and loan capital, 592. , 

Revenue, falsely interchanged with .capi- 
tal, 984. 

Revenue, its social partition, 975. 

Revenue, its trinitarian forrnula com- 
prises all the secrets of capitalist pro- 
duction, 947. 

Ricardian School mistaken in attempting 
to devolop laws of rate of profit di- 
rectly from laws of surplus-value, 59. 

Ricardo did not analyze the relations 
between a fall in wages and a rise in 
the rate of profit. 237. 

Ricardo, his conception of ground rent 
assumes that it arises only from a suc- 
cession to worse soil, 772. 

Ricardo, his definition of rent, 760. 

Ricardo, holds that the value of metal- 
lic money is determined by the labor 
time incorporated in it, so long as the 
quantity of money is_ rightly pro- 
portioned to the quantity and prices 
of commodities, 642. 

Ricardo's assumption that industrial 
profit plus interest pockets the entire 
profit, is historically false, 285. 

Ricardo's theory of money amounts to 
a tautology, 644. 

Rodbertus, his erroneous view of the re- 
lation between capital and profit, 164. 

Rodbertus refuted, 18. _ 

Rural Industry, its transition to city in- 
dustry, 394. 

Russia, typical for theory of ground 
rent, 16. 



Saint-Simonists, their banking and credit 

illusions, 710. 
Schmidt, Conrad, concerning Contradi- 

tion, 21. 



Schmidt, Conrad, finds correct solution 
for smking tendency of average rate 
of profit, 23. 

Secondary Exploitation, runs parallel 
with the primary one in the process 
of production, 716. 

Securities, their mass may increase while 
the total mass of currency remains the 
same, 542. 

Securities, two reasons why their price 
falls during periods of stringency, 550. 

Self-expansion of Capital mystified by 
confounding fixed and circulating cap- 
ital, 46. 

Selling Function transferred from man- 
ufacturer to merchant, 317. 

Selling Price fluctuates between value 
and cost price of commodity, 50. 

Selling Price, its modification by the 
average time of turn-over of the mer- 
chants' capital, 368. 

Serfs, could acquire property under 
feudalism, 921. 

Shares of Stock, a title to ownership 
of future surplus-value, 541. 

Shipments from India, made to meet 
payments on due bills, _ 482. 

Slave Economy, appropriates the entire 
surplus product, 934. 

Small Peasants' Property, a barrier to 
rational agriculture, 945. 

Small Peasants' Property, causes of its 
downfall, 938. 

Small Peasants' Property, feels heavy 
crops as a misfortune, 939. 

Small Peasants' Property, fortifies the 
illusion that land has a value, 941. 

Small Peasants' Property, keeps the 
price of cereals lower than capitalistic 
property, 937. 

Small Peasants' Property, under it the 
rural population must far exceed the 
population of the towns, 935. 

Small Shopkeeper, his principle of 
small profits and quick returns, 370. 

Smith, Adam, wrongly held that the 
value of commodities resolves itself 
in the last analysis into wages, profit 
and rent, 979. 

Social demand is conditioned on the 
mutual relations of economic classes, 
214. 

Socialist Theory combined with practice, 
10. 

Social Transformation, its approach her- 
alded by intensification of antagonisms, 
1030. 

Soil, differences in quality and quan- 
tity must be taken into account in 
determining differential rent, 777. 

Soil, different successions illustrated, 
768. 

Soil, does not serve as means of produc- 
tion, but only as a space, in industrial 
production, 907. 

Soil, its composition and place in the 
succession of cultivation affects differ- 
ential rent, 763. 

Soil, its descending succession in difTer- 
ential rent No. I, 765. 

Soil, its inferior sections made prefera- 
ble for cultivation to its superior ©nes 
by location, 788. 



Index. 



TO47 



Soil, when new, may produce fine crops 
without fertilization, 785. 

Speculative Bills, regarded as legitimate 
bills by bankers, 485. 

State Debts, a fictitious capital, whose 
value is illusory, 549. 

Statistics of Exports and Imports, an 
index of actual accumulation, 588. 

Statistics, their unreliability under Cap- 
italism, 92. 

Stiebeling, George C, fails to solve 
Engels' conundrum, 33. 

Stock, underwritten only so far as is 
necessary to make first payments, 479. 

Stock Companies, may be successful, 
even if they yield only interest, 517. 

Superintendence according to Aristotle, 
453. 

Superintendence as a productive labor, 
451. 

Superintendence as wa^e labor, 455. 

Superintendence in ancient times, 452. 

Supply and Demand regulate the division 
of profit into interest and profit proper, 
419. 

Supply and Demand, their meaning an- 
alyzed, 219. 

Supply and Demand, their proportion re- 
peats the relations between use-value 
and exchange-value, 227. 

Surplus Capital and Surplus Population, 
294. 

Surplus Labor, performed during un- 
paid overtime is additional exploita- 
tion, 94. 

Surplus Product, its specific meaning 
in the case of rent, 809. 

Surplus Product, may represent a minus 
in value, 914. 

Surplus Profit, its conversion into 
ground rent affected by the ^ question 
whether capital is invested simultane- 
ously in different pieces of land or 
successively in the same piece of land, 
789. 

Surplus Profits, they do not, as a rule, 
arise from differences between the 
values and prices of production of 
commodities, but rather from differ- 
ences between the individual and the 
general prices of production, 8S3. 

Surplus-Value an increment of both the 
consumed and the unconsumed ad- 
vanced capital, 47. 

Surplus Value does not come from 
sale of product above its value, 52. 

Surplus-Value, general conditions neces- 
sary for its existence, 744. 

Surplus-Value in the form of profit arises 
out of both the fixed and the circulat- 
ing components of invested capital, 

- 48. 

Surplus- Value, its magnitude depends 
upon both the magnitude and the tech- 
nical composition of capital, 60. 

Surplus- Value, its mass depends uppn 
the mass of variable capital, when its 
rate is given, 178. 

Surplus-\'a!ue mistaken for interest be- 
comes meaningless and a subject of 
fancy, 468. 

Surplus-Value, represented by a profit 
plus rent, does not realize all the sur- 
plui labor performed, 970. 



Surplus- Value transformed into profit 
by way of the rate of profit, 58. 

Swindle in East Indian Trade bankrupted 
English firms, 572. 



Tariff, its abolition or reduction for raw 
materials essential for industry, 127. 

Technical composition of capital the pri- 
mary basis of its organic composition, 
172. 

Tendency of Capitalist Production is to 
increase constant capital faster than 
variable capital, 249. 

Theoretical Economists, their confusion 
illustrated, 199. 

Three Principal Facts of capitalist pro- 
duction : Concentration of means of 
production, Organization of Labor, 
and Creation of World Market, 312. 

Titles of Ownership to shares of stock, 
nominal representatives of a capital 
that does not exist, 560. 

Titles to Property, not created by trans- 
fer, but by the mode of production, 
and protected or annulled by it, 901. 

Tie-Up of Capital defined, 131. 

Tooke's definition of credit, 471. 

Tooke, his inconsistency in_ the discus- 
sion of the currency principle, 436. 

Total Capital increases faster than rate 
of profit falls, 259. 

Town Industry, as soon as it is sepa- 
rated from agricultural industry, pro- 
duces commodities for sale, 390. 

Transition from feudalist to capitalist 
production, 393. 

Transportation and Shipping Industries 
are classed as productive industries, 
340. 

Traveling Agent, receives his wages out 
of the profit of the industrial capital- 
ist, 342. 

Turn-Over, reduction of its period in- 
creases the rate of profit, 85. 

Turn-Over of capital, its various phases 
analyzed, 88, 89. 

Turn-Over of Commercial Capital a _ re- 
peated process of buying and selling, 
357. 

Turn-Over of Merchants' Capital, its ef- 
fect on prices, 361. 

U 

Unemployed Capital, its plethora reduces 
the rate of interest, 490. 

Unproductive Classes, their incomes re- 
main for the greater part stationary 
during an inflation of prices through 
overproduction and overspeculation, 
577.. 

Unsanitary Conditions in work rooms, 
111. 

Usurer's Capital, the characteristic form 
of interest-bearing capital during the 
stage of small independent production, 
698. 

Usury, a means of introducing new sys- 
tems only when other conditions assist 
it, 701. 

Usury, attaches itself to the function of 
money as a means of payment, 704. 



1048 



Index. 



Usury, may devour the whole surplus of 
the producer, 699. 

Usury, retains its old form in the tran- 
sactions with people who are not cap- 
italists, 705. 

Usury, undermines ancient and feudal 
wealth, 700. 

Usury, uses a capital's method of ex- 
ploitation without its mode of produc- 
tion, 702. 

Use-Value, the basis of surplus-value, 
745. 



Value, difficulty of its equilibration in 
society as a whole, 973. 

Values, newly produced, may be the 
same and yet express different quan- 
tities of variable capital and surplus- 
^ value, 81. 

\^alue of Agricultural Product, two ways 
in which it may rise without selling 
the product above its value or above 
its price of production, 906. 

VaUie of Money-capital, another term 
for rate of interest, 6S1. 

Variable Capital, an index of the quan- 
tity of living labor set in motion by 
it, which labor is always greater than 
that incorporated in the variable capi- 
tal, 174. _ 

Variable Capital, its specific organic re- 
lation to the movement of the total 
capital and its self-expansion, 66. 

Variable Capital, its value does not in- 
dicate number of laborers employed or 
wages paid to them individually. 79. 

Variable Capital of merchant increases 
his expenses without increasing the di- 
rect surplus-value, 352. 

Variable Capital, sets in motion more 
labor than its value expresses, 67. 

Variations in Value due to changes in 
the_ proportion between constant and 
variable capital, or due to a prolonga- 
tion or reduction of the time of turn- 
over, affect the rate, but not the mass 
of profits, so long as the rate of sur- 
plus-value remains the same, 169. 

Vulgar Economist is a translator of the 
false economic conceptions of capital- 
ists, 271. 

TV 

Wages, case in which a productivity of 
labor may reduce them, 999. 

Wages, _ depressed for the purpose of 
contributing to lease money, 736. 

Wages, difficulty of determining them as 
the price of labor-power, 1006. 



Wages, form the relative limit in the 
partition of revenue, 1000. 

Wages of Abstinence, the speciousness of 
the idea exposed, 520. 

Wages of commercial laborer do not bear 
the same organic relation to the mer- 
chant's profit as the wages of the in- 
dustrial laborer to the surplus-value of 
the manufacturer, 354. 

Wages of superintendence, a disguise of 
profit of enterprise, 450. 

Wages of Superintendence paid to board 
of managers become a swindle, 458. 

Wages of Superintendence separated 
from profits, 457. 

Wages, their depression below value a 
means of checking the falling ten- 
dency of the rate of profit. 276. 

Wages, their increase or decrease in- 
fluences the rates of surplus-value and 
of profit, 80. 

Wages and Price of Production in their 
mutual relations, 236. 

Wage Workers, their number increases 
absolutely but decreases relatively, 309. 

Wars, ruin small peasants, 703. 

Waste, its expense rises and falls with 
the fluctuations in the price of raw ma- 
terials, 130. 

Waste Products in industry, 121. 

Water, included in the Marxian term 
"land" to the extent that it has an 
owner and belongs as an accessory to 
the soil, 722. 

Water Power, may produce a ground rent 
not produced by establishments oper- 
ated by steam engines, 751. 

Wealth of Nations, not impaired by the 
fluctuations of fictitious capital, 551. _ 

Wear and Tear of constant capital, if 
excessive, may reduce productiveness 
of machine labor below that of hand 
labor, 135. 

Wolf, Julius, unable to understand Marx, 
26. _ 

Working Day in different countries and 
surplus-value compared, 252. 

\A'orking Day, its legal reduction met by 
attempts to reduce wages, 128. 

Working Day, its shortening induced im- 
provements in machinery, 119. 

Working Day, prolonged by necessity of 
increasing fixed capital, 93. 

World-Market, _ the basis and vital ele- 
ment of capitalist production, 131. 

World Market, the basis of capitalist 
production, 392. 

World Money, no additional currency is 
required to balance international ac- 
counts by it. 570. 



OCT 



-0 \^^^^ 



